FRANKFURT (MNI) – The adverse effects of the strong Swiss franc on
Switzerland’s economy may be more severe than anticipated, and downside
risk to growth remain “substantial” even as the recovery continues to
exceed expectations, Swiss National Bank Governing Board Chairman
Philipp Hildebrand said Friday.

At the same time, risks to price stability are emerging and the SNB
stands ready to “take all measures necessary to ensure price stability
in our country,” Hildebrand said in the text of a speech for delivery at
the SNB’s general shareholders’ meeting.

“Despite the continued strength of the Swiss franc, the Swiss
economy is growing more vigorously than anticipated. Business
expectations still suggest continued favorable developments in the
coming months,” he added.

Nevertheless, the SNB still expects weakening growth over the
course of the year, Hildebrand said, reiterating the previous GDP growth
forecast for 2011 of 2.0%.

The SNB head warned of “substantial” downside risks to growth,
citing in particular the strong currency, which may “cause more
difficulties for the economy than previous data lead us to believe.”

In particular, he pointed to “increased competitive pressure for
many Swiss export firms,” noting that “a growing number of companies are
beginning to consider transferring production abroad.” He also warned
that the appreciation of the franc has “particularly affected the
tourism industry,” where foreign demand has declined over recent months.

In addition, “risks to growth arise as a result of the global
environment, in particular the precarious debt situation of many
sovereign states and the possible repercussions of such problems on the
financial markets,” Hildebrand cautioned. At the same time, a further
rise in oil prices “could seriously curb global economic growth,” he
warned.

Meanwhile, higher oil prices have pushed up inflation worldwide and
“certain upside risks are beginning to emerge with regard to price
stability,” Hildebrand observed. While the strong franc has helped keep
inflation in Switzerland “moderate” thus far, a rapid weakening of the
currency could push up imported commodity price inflation.

“Furthermore, the expansionary monetary policy carries long-term
risks for price stability,” Hildebrand said, adding that in Switzerland,
those risks manifest themselves in the continued strong growth of the
monetary aggregates and of mortgage lending.

“The SNB has frequently stated that the situation on the mortgage
and real estate market requires particular attention. It is especially
in these areas that imbalances with serious repercussions can occur if
interest rates remain at a very low level for a long time,” he said.

“The SNB will not hesitate to take all measures necessary to ensure
price stability in our country, also in the future,” Hildebrand
asserted.

Frankfurt Bureau tel.: +49-69-720 142, email: jtreeck@marketnews.com

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