BERNE, Nov 8 - Swiss consumer confidence plunged and unemployment rose in October, data showed on Thursday, adding fresh evidence of a weakening economy that could trigger another Swiss interest rate cut as early as today.
Consumer spending has been a pillar of Swiss economic growth this year as a global slowdown crimps demand for exports, but growing concern about economic developments undercut private households' confidence last month.
The confidence index retreated to minus 17 points in October from plus 12 points in July, the steepest drop since the start of the Gulf war 11 years ago, the State Secretariat for Economic Affairs (SECO) said.
The index, based on a quarterly survey of households, has been declining since it hit 25 points in January, the peak of a cycle which started its upswing from minus 41 points in the third quarter of 1996.
SECO also reported that the unemployment rate rose to 1.9 percent in October from 1.7 percent in September.
Economy Minister Pascal Couchepin had let slip the number during a visit to Brussels this week. Before that, economists had been looking for a rate of 1.8 or 1.9 percent.
The Swiss National Bank is keeping markets guessing about when it will cut rates for the fourth time this year, although markets widely expect another easing move before year's end given the slowing economy and tame inflation.
The SNB's policy-setting three-member directorate holds its weekly meeting later on Thursday. The European Central Bank also decides on rate policy today.
The SNB is likely to announce its decision after the ECB's announcement at 1245 GMT. In the past, however, the SNB has announced decisions ahead of the ECB and a decision to keep rates unchanged does not preclude a rate change later.
"A quarter-point (ECB) cut is discounted in the market and we do not think the SNB will follow today," a senior foreign exchange trader at a big Swiss bank said, adding he expected the euro to benefit from an ECB rate cut.
"We have seen it with the dollar and I think we will see it with the euro that a rate cut is seen as positive and will boost the currency," he added, even though economic textbooks would claim a rate cut would undermine the value of a currency.
Jan Poser, a currency strategist at Bank Sarasin, said he did not expect the SNB to cut on Thursday but that it would come with a 25-point reduction in December. But Thomas Haerter of Bank Leu said he expected a rate cut today by both the ECB and the SNB.
Economists at UBS Warburg said the SNB could cut today if the ECB would slash rates by 50 basis points rather than 25, or if the Swiss franc would appreciate further.
The SNB now targets the middle of a range of 1.75 to 2.75 percent for three-month Swiss franc London Interbank Offered Rate. It last cut rates by half a point on September 24 to counter the franc's rapid rise against the euro.
The franc was benefitting at the time from its reputation as a safe-haven investment at times of international crisis.
Jean-Luc Nordmann, head of the SECO's labour section, told that seasonal factors accounted for around one-third of the rise in October headline unemployment and economic factors two-thirds.
"We had always expected a rise, but this has been reinforced by the events since September 11," he said, noting the suicide attacks on U.S. landmarks had hit tourism and consumer behaviour and helped trigger massive layoffs at collapsed national airline Swissair.
"We expect (the jobless rate) to land at around 1.8 percent for an annual average as we said at the start of the year, but we have to expect a rise next year to around 80,000 unemployed, or 2.2 percent," he said.
"That will also be the case in 2003 because an economic recovery only has a delayed impact on the labour market."
Swissair layoffs added 376 people to the jobless rolls in October, but this did not include people in temporary jobs or at Swissair suppliers who also found themselves out of work. Swissair staff laid off at the end of October will swell the official jobless ranks by around 2,500 in November, he said.
SECO had earlier believed the jobless rate would stand around 2.1 percent at the end of the year, but Nordmann said it now assumed the December level would be slightly higher than this.
He stressed that the Swiss economy was better placed to absorb a global slowdown than in the past.
"We still assume we will have a fitter economy than we had 10 years ago and thus we do not have to reckon with a recession," he said, noting economic growth was set to slow to 1.3 percent next year from 1.6 percent in 2001 before accelerating again to two percent in 2003.