News and Finance

Investor confidence in the Swiss economy dropped to the lowest ever as soaring raw material costs and flagging growth in the U.S. and Europe dimmed the outlook.

An index of investors' and analysts' expectations for the next six months fell to minus 76.9 in July from minus 63.8 the previous month, the ZEW Center for European Economic Research and Credit Suisse Group said today in Zurich. That's the lowest reading since the survey was first conducted in June 2006.

The Swiss economy is set to cool as slowing global growth hurts profit at companies like Herrliberg-based Ems-Chemie Holding AG and record oil prices eat into spending power. With inflation at 2.9 percent, the fastest in 15 years, Switzerland's central bank may have limited room to counter stagnating growth by easing borrowing costs.

“Exports to the U.S. have been cooling for some time, but now it looks like sales in Europe are weakening, too,'' said Alessandro Bee, an economist at Bank Sarasin in Zurich, who forecasts the Swiss National Bank will cut borrowing costs in December. “That's decisive for Swiss growth.''

Confidence in the global economy fell this month after the U.S. housing crisis engulfed Fannie Mae and Freddie Mac, the country's biggest mortgage lenders, and the price of oil climbed to a record, a Bloomberg survey showed. Investor optimism in Germany, Switzerland's biggest trading partner, fell to a record this month.

U.S. Pain

Survey answers “paint a negative picture of economic momentum in the medium term,'' ZEW said in the report. “More than three-fourths of financial market experts forecast a deteriorating economic situation in Switzerland on a six-month horizon.''

Zurich-based UBS AG has been the hardest hit by the U.S. housing crisis. Shares of the country's largest bank, which has written down more than $38 billion in assets infected by the mortgage slump, fell more than 70 percent in the past year.

Switzerland's leading economic indicators fell to the lowest since September 2003 last month as exports braced for a slowdown. The government estimated in March that growth in sales abroad will slow to about 3 percent in 2008 from about 10 percent in each of the previous two years.

The SNB estimates growth will slow to between 1.5 percent and 2 percent this year from 3.1 percent in 2007. Switzerland's economic expansion slowed to the weakest pace in more than 3 years in the first quarter.

Rates Warning

Swiss National Bank Governing Board member Thomas Jordan said this month the bank would raise borrowing costs if it saw the risk of a wage-price spiral developing. The central bank left its target interest rate unchanged at a six-year high of 2.75 percent in June. Inflation in Europe accelerated to the fastest in more than 16 years in June.

More than 35 percent of survey respondents forecast that Swiss inflation will climb further, while about 30 percent predict inflation will remain at current rates. About 28 percent forecast short-term interest rates to rise, while more than 66 percent predict borrowing costs to remain unchanged.

The survey of 75 analysts was conducted between July 10 and July 14.

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