Swiss Economy Likely Shrank for Fourth Straight Quarter in Q2

Switzerland’s [B]Gross Domestic Product[/B] is expected to shrink 1% in the three months to June, marking the fourth consecutive quarter in negative territory and revealing the economy is now contracting at an annual pace of 3%, the fastest in at least 34 years. Looking ahead, a survey of economists conducted by Bloomberg expects output will continue to shrink though the end of this year and begin a modest recovery in the first quarter of 2010. However, this may prove too rosy: exports of goods and services account for a whopping 51.6% of the overall economy, an overwhelming majority of which are headed for markets in the European Union. Indeed, Germany, France and Italy alone make up a whopping 37.3% of foreign demand. Continental European economic growth is expected to trail sharply behind that of most other developed economies (with the notable exclusion of Japan) through the end of next year, suggesting overseas sales and with them overall performance may remain under water for substantially longer than consensus forecasts would have us believe. Deflation adds to the downside risks for the economy: annual inflation is expected to shrink for the fifth consecutive month in August; if this translates into expectations of lower prices in the future, consumers and businesses will perpetually delay spending and investment as they wait for the best possible bargain, bringing economic growth to a virtual standstill.