By Catherine Bosley
ZURICH, May 28 (Reuters) - Switzerland's economy is set to grow more in coming months, the KOF barometer showed on Friday, heightening the central bank's dilemma of how to respond to a solid domestic recovery while fighting a rise in the currency.
Also on Friday, data showed Swiss exports rose for the second consecutive month in April as stronger global demand for Swiss goods offset the potential dampening effect of the strength of the franc, which has become a magnet for investors seeking a safe haven.
UniCredit economist Alexander Koch said the conundrum for the Swiss National Bank was getting trickier after the KOF rose to 2.16 in May, its strongest since Aug. 2006.
'(If) the pressure on the Swiss franc remains, and at the same time the Swiss economy is fundamentally showing you should raise rates, it's a tough question -- what do you do?,' Koch said.
Switzerland weathered the global downturn better than other European countries. With the euro pummelled by concerns about sovereign debt in southern Europe, the franc strengthened nearly 3 percent against the euro between April 1 and May 19, when it hit a record high just past 1.40 francs to the euro, despite repeated SNB interventions to halt its rise.
'We consider 1.40 not to be dramatic, we would need a much stronger franc to dampen exports,' said Credit Suisse economist Fabian Heller.
Exports rose by 3.2 percent in April from a year earlier to 15.755 billion Swiss francs ($13.6 billion), the Federal Customs Office said. That lifted Switzerland's merchandise trade surplus to 2.022 billion francs, from 1.696 billion in March.
SNB Vice Chairman Thomas Jordan said last week that Swiss exporters had coped comparatively well so far with a stronger currency, adding that global demand and not the exchange rate were key to their success.
The SNB's next interest rate decision is on June 17, but given the euro zone crisis, economists do not expect the bank to raise rates just yet.
Interest rate futures indicate the SNB may tighten policy in in December.
Swiss imports in April from euro zone members Germany and Italy saw a 'massive increase', the customs office said.
Watch exports rose 11.5 percent in nominal terms from a year earlier, largely thanks to demand in emerging markets.
'Again China and Hong Kong are the growth drivers. The watch makers are a Chinese story,' said John Cox, an analyst at Kepler Capital Markets.
(Editing by Ruth Pitchford) ($1=1.161 Swiss Franc) Keywords: SWISS ECONOMY/TRADE (Zurich newsroom +41.58.306.7336, fax +41.44.251.0476, zurich.newsroom@news.reuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
ZURICH, May 28 (Reuters) - Switzerland's economy is set to grow more in coming months, the KOF barometer showed on Friday, heightening the central bank's dilemma of how to respond to a solid domestic recovery while fighting a rise in the currency.
Also on Friday, data showed Swiss exports rose for the second consecutive month in April as stronger global demand for Swiss goods offset the potential dampening effect of the strength of the franc, which has become a magnet for investors seeking a safe haven.
UniCredit economist Alexander Koch said the conundrum for the Swiss National Bank was getting trickier after the KOF rose to 2.16 in May, its strongest since Aug. 2006.
'(If) the pressure on the Swiss franc remains, and at the same time the Swiss economy is fundamentally showing you should raise rates, it's a tough question -- what do you do?,' Koch said.
Switzerland weathered the global downturn better than other European countries. With the euro pummelled by concerns about sovereign debt in southern Europe, the franc strengthened nearly 3 percent against the euro between April 1 and May 19, when it hit a record high just past 1.40 francs to the euro, despite repeated SNB interventions to halt its rise.
'We consider 1.40 not to be dramatic, we would need a much stronger franc to dampen exports,' said Credit Suisse economist Fabian Heller.
Exports rose by 3.2 percent in April from a year earlier to 15.755 billion Swiss francs ($13.6 billion), the Federal Customs Office said. That lifted Switzerland's merchandise trade surplus to 2.022 billion francs, from 1.696 billion in March.
SNB Vice Chairman Thomas Jordan said last week that Swiss exporters had coped comparatively well so far with a stronger currency, adding that global demand and not the exchange rate were key to their success.
The SNB's next interest rate decision is on June 17, but given the euro zone crisis, economists do not expect the bank to raise rates just yet.
Interest rate futures indicate the SNB may tighten policy in in December.
Swiss imports in April from euro zone members Germany and Italy saw a 'massive increase', the customs office said.
Watch exports rose 11.5 percent in nominal terms from a year earlier, largely thanks to demand in emerging markets.
'Again China and Hong Kong are the growth drivers. The watch makers are a Chinese story,' said John Cox, an analyst at Kepler Capital Markets.
(Editing by Ruth Pitchford) ($1=1.161 Swiss Franc) Keywords: SWISS ECONOMY/TRADE (Zurich newsroom +41.58.306.7336, fax +41.44.251.0476, zurich.newsroom@news.reuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.