Swiss Drugs Boost Hides Economy’s Manufacturing Troubles

(Bloomberg) --

Switzerland’s huge drugs and chemical industry provided a timely boost to the economy in the third quarter, helping it to offset the slump that’s walloped manufacturing around the world.

The 0.4% growth rate -- double the 0.2% forecast by economists -- was almost entirely due to pharmaceuticals and energy. Excluding those, it would have been close to stagnation, according to the State Secretariat for Economic Affairs.

Switzerland’s pharma industry, which includes drug giants Roche and Novartis, is largely immune to the global business cycle and the strength of the Swiss currency, which has blighted Switzerland’s manufacturing sector for years.

The weak spot in the data was a fall in exports of machinery and equipment, reflecting the global factory slump, and what SECO called the “subdued international environment.”

The softness underscores the Swiss National Bank’s refrain that it needs to keep interest rates at a record-low -0.75%. It wants to prevent the franc appreciating, which would pile further pressure on the economy.

Policy makers say the currency remains highly valued and that there’s room to cut interest rates further if needed.

Economists surveyed by Bloomberg in recent weeks forecast expansion of just 0.8% this year, which would be the worst performance in a decade. The government also sees 0.8%, though it anticipates a pickup to 1.7% in 2020.

Signs that the slowdown in Germany is bottoming out offer some hope for the outlook. There’s also tentative signs that the U.S. and China will sign an interim trade deal, which would end some of the uncertainty that’s damaged business confidence and investment.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

To contact the editor responsible for this story: Fergal O'Brien at fobrien@bloomberg.net

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