ZURICH (Dow Jones)--The Swiss government warned Tuesday that “new risks to growth have emerged” with the Swiss franc’s recent strong gains even though there has been a solid expansion in gross domestic product so far this year.

The Swiss Economy Ministry maintained its forecast for economic expansion this year at 2.1%, but lowered its GDP growth prediction for 2012 to 1.5% from its previous projection of 1.9%. It also cut its forecasts for inflation this year and next.
“The currency appreciation, which already represented a burden on Swiss exports during the last few months, has jumped even higher over the last few weeks,” the ministry said Tuesday. “Any additional strong pressure on the franc would jeopardize growth to a serious degree.”
The Swiss currency has climbed to new record highs against both the euro--the currency of Switzerland’s main trade partners--and the dollar in recent days as the debt crisis in the euro zone has spurred demand for the franc, which is seen as a refuge in times of economic uncertainty.
“Against the backdrop of a still fragile global economy, and given the growing doubts about the sustainability of the high level of sovereign debt, we assume demand for safe currencies should continue, and a significant downward correction of the franc isn’t expected in the short run,” the ministry said.
The franc is likely to remain the key determining factor for the Swiss central bank’s interest-rate policy, and the government’s assessment of the economy, analysts said.
“It is interesting to note the ministry doesn’t see any significant change to the Swiss National Bank’s key interest rate this year,” said David Marmet, chief economist at Zuercher Kantonalbank.
The ministry sees the SNB’s target for three-month Swiss franc Libor at 0.3% this year, compared with its forecast of 0.2% for 2010, but expects it to rise to 0.8% in 2012. The SNB is widely expected to keep its target rate at 0.25% when it meets Thursday.
While Swiss GDP growth has been resilient in recent quarters due to strong demand from its key German and developing-country markets, “should the upward pressure on the franc persist, significant negative effects on export volumes can be expected in 2011 and 2012,” the ministry said.
The Swiss unemployment rate is expected to average 3.1% this year, compared with a previous estimate of 3.2%, and 3.3% in 2012, unchanged from its previous prediction, it said.
Consumer price inflation is expected to reach 0.7% in 2011 and next year, compared with previous forecasts of 1.0% and 0.9%, respectively.
In addition to the threat to Swiss growth posed by the stronger franc, “the outlook for the world economy looks uneven,” it said. “Economic growth should remain subdued in many Organization for Economic Cooperation and Development countries as has historically been the case subsequent to severe real-estate and financial crises,” Seco said.