Swiss economy contracts unexpectedly in Q2

The Swiss economy shrank slightly in the second quarter in its first contraction in nine months, data showed on Tuesday, as the crisis in the neighbouring euro zone hit exports of services even as private and public consumption stayed healthy.

The figures supported the case for the Swiss National Bank to maintain the 1.20 per euro cap on the franc it imposed a year ago to ward off a recession as investors sought a sanctuary in the safehaven currency from the troubles of the euro zone.

Gross domestic product fell 0.1 percent in the second quarter compared with the first, the State Secretariat for Economics said, from a revised growth figure of 0.5 percent for the first three months of the year. Analysts polled by Reuters had forecast a secondquarter growth rate of 0.2 percent. .

Year-on-year, GDP rose 0.5 percent, compared with a rise of 1.6 percent in a Reuters poll and slowing from a revised 1.2 percent growth in the first three months.

The SNB, which holds its next rate decision on Sept. 13, has predicted the economy will slow significantly in the second half, forecasting growth of about 1.5 percent this year. It will issue a new forecast at its policy review next Thursday. The economy’s relatively solid performance until now had prompted questions about the continued need for the SNB’s cap on the franc.

Adding to doubts about its sustainability, the SNB has to intervene by selling hundreds of billions of francs for euros, pushing its reserves to nearly 70 percent of GDP in July, to make its limit hold.

The manufacturing sector contracted for the fifth month running in August, the purchasing managers’ index showed on Monday.