S&P: Stronger franc slowing but not stalling Swiss economy

The Swiss franc's recent surge will hit economic growth in the wealthy alpine nation but not as badly as initially feared, ratings firm Standard & Poor's said Monday.

The agency said it had revised downward its economic growth forecasts for Switzerland, now expecting gross domestic product to expand just 0.7 percent this year and 1.9 percent in 2016.

In December, it predicted the Swiss economy would grow 1.7 percent in 2015 and 2.1 percent next year.

In the meantime, the Swiss central bank shocked domestic and global markets with its decision on January 15 to end three years of efforts to hold down the value of the Swiss franc against the euro.

The Swiss currency soared, spurring many economists to predict doom and gloom for the country's export-driven economy.

S&P said the main reason it had slashed its outlook was "the sharp, sudden appreciation of the Swiss franc in January, which we expect to hamper export growth, though factors such as stronger growth in Switzerland's major trading partners will soften the blow."

But the agency said its forecast "calls for less of a drop in GDP than many assume, partly because we believe that oil prices will remain low for a few years, giving a boost to consumer demand."

Several economists and institutes had sharply downgraded their growth forecasts for the Swiss economy in the wake of the Swiss National Bank (SNB) decision, but have recently revised estimates to a more optimistic level.

"Assuming no flare-up in the eurozone sovereign debt crisis, we expect the Swiss currency to weaken over time," the S&P statement said.

"SNB intends to remain active in the foreign exchange market to moderate any substantial move of the franc, and to possibly lower deposit interest rates further into negative territory. Such actions are likely to extend the currency's downtrend," it said.

The SNB imposed the peg to the euro in a bid to weaken the franc as the strength of the currency was hurting export sectors.