UBS expects immigration to help propel Swiss economy

The Swiss economy is set to rebound in a bigger way than previously expected this year, according to economists from UBS.

The bank on Monday issued a report that raises its forecast economic growth for the country to two percent from a previously anticipated 1.7 percent.

In its quarterly Outlook Switzerland report, UBS said the expansion will be powered by the country’s industrial sector, which is expected to recover after seeing order books plunge last year,

Immigration will also support consumer spending, which will otherwise be hit by an expected rise in unemployment, the bank said.

The federal government said on Monday that the national jobless rate jumped to 4.5 percent in January from 4.4 percent the previous month.

But Switzerland’s largest bank sees other factors propelling the economy, which fell into recession last year and contracted by an estimated 1.6 percent.

“UBS economists expect equipment investments, net exports and construction to support growth,” the report said.

A continued inflow of immigrants is again credited with helping support demand for property and work for builders.

“Immigration and record-low mortgage interest rates are fueling demand for housing,” the report said.

The conclusions contrast with other economic forecasts, which have so far been less optimistic.

Credit Suisse, for example is predicting the economy will grow by just 0.6 percent in 2010.

“I think it’s clear we’ll have a turnaround in the industrial sector,” Délia Nilles, deputy director of the Créa Institute of applied economics told Swisster. “But two percent growth? I think that’s too much.”

Nilles said unemployment will continue to have a negative impact on private consumption “which accounts for 64-65 percent of GDP (Gross Domestic Product)”.

The Créa Institute, attached to the University of Lausanne, made one of the most negative predictions for 2010 in October, 2009, when it forecast a 0.4 percent contraction in the economy for 2010.

Nilles said the institute’s next forecast is not due until April.

The figure may show some slight improvement, she acknowledged.

“But according to me it’s still a bad economy. Even with an improvement in exports . . . it always takes firms a couple of months to start hiring again.”

Nilles said uncertainty about the global economy also lingers, with such factors as the debt problems of such countries as Greece and Spain clouding the future.

However, Carla Duss, UBS economist, said Switzerland is well poised for recovery because it emerged from the recession in better shape than other countries.

“We suffered primarily from external factors - exports and the loss of growth contribution from the financial sector,” Duss said.

“We didn’t have a real estate bubble and we had no excessive lending problems,” she said.

“Now we see the global economy recovering a little and we think Switzerland will benefit from that.”

Duss underscored the role immigration is playing in supporting consumer spending.

“We don’t see a substantial break in the trend . . . people are still coming here for jobs,” she said.

“We also think there could be some sort of pickup in investments, mainly because last year was so bad.”

UBS said its forecast is backed by its economic indicator, a barometer of the Swiss economy, which has risen steadily since the third quarter of 2009.

The indicator is based on a survey of 650 companies from different sectors. It shows that the industrial sector appears to be recovering, with the hardest-hit companies seeing an end to the slide in exports.

“The machinery, electrical and metals industries, which were greatly affected by the crisis are expecting unchanged or slightly higher sales year-on-year in first quarter 2010 – the first time in a while,” UBS said.

Its survey of industries showed that the chemicals industry “already turned the corner in fourth quarter 2009” while the watchmaking industry is expecting to stabilize in the first three months of this year.

The forecast indicates that the recovery will be uneven with other sectors of the economy continuing to struggle.

Companies surveyed by UBS in the services sector, which saw profits dip in 2009 from the previous year, with little improvement in the fourth quarter and “continued layoffs at a slow pace,” expect to see similar results in the first quarter of this year.

However, the sector was less affected by the crisis than industrial companies.

Retailers and companies in the tourism business, meanwhile, expect profits to fall further this year.

After a drop in revenues and layoffs in late 2009, the Swiss print and media industry expects prospects to “stabilize” in the first three months of this year, UBS said.

Despite the overall expected upturn in the economy, the bank says low plant capacity utilization, high unemployment (expected to reach five percent) and the strong franc will keep a lid on inflationary pressure.

It anticipates an inflation rate of 0.6 percent for the year. But UBS economists expect the Swiss National Bank to start raising interest rates in the autumn.