Switzerland's economy is expected to "slow considerably" this year and might require more central bank intervention to steady it despite the Swiss franc falling back against the euro, the Swiss National Bank's vice chairman said Tuesday.
In a speech to the Swiss-American Chamber of Commerce, Thomas Jordan said the nation's economy will probably "grow only weakly over the next few quarters of 2012" as it continues to suffer from turmoil in the global economy and particularly the escalating sovereign debt crisis in the eurozone.
Jordan said it was "uncertainty over the debt crisis" in the eurozone that led to the massive appreciation of the Swiss franc, which rose to an all-time high against the euro in early August. That export-sapping rise, he said, "posed an acute threat to the Swiss economy and carried the risk of deflationary developments."
Switzerland's biggest trading partner is the European Union, but the overvalued franc also cut into business with the United States and the developing world.
Jordan said economic activity in Switzerland slowed significantly in the third quarter of last year and exports "fell noticeably."
"After two years of fairly robust recovery, we expect the Swiss economy to slow considerably in 2012," he said. "The situation remains very challenging for Switzerland. ... We project the Swiss economy to grow only weakly over the next few quarters."
As a result, the Swiss Central Bank remains "firmly committed to defending" its move in September to put a lid on the currency's rise by setting a target exchange rate of 1.20 Swiss francs per euro, Jordan said.
The central bank's determination to spend an unlimited amount to defend the move commits it to buying euros and selling francs whenever the euro falls below 1.20 Swiss francs, effectively setting a ceiling for the franc or a floor for the euro.
"In addition to the strong Swiss franc, the general global economic outlook has deteriorated and downside risks prevail. Given this difficult environment, we remain firmly committed to defending the minimum exchange rate of 1.20 francs per euro," he said. "Moreover, we stand ready to take further measures if the economic outlook and the risk of deflation so require."
Central bank data showed Tuesday that the value of the Swiss National Bank's foreign currency reserves fell to 227.2 billion Swiss francs ($247.7 billion) in January. Its foreign currency holdings stood at 254.3 billion Swiss francs in December.
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