Thursday, the Swiss economy is set to shrink 2.4% in 2009, the Zürich-based research institute KOF said. In December last year, the think tank had projected a contraction of 0.5% for this year.

Going forward, the KOF forecasts a 0.3% decline in the gross domestic product for next year, which was previously expected to grow 0.6%.

KOF said the recession will be deeper and longer than we expected in our assessment at the turn of 2009.

The institute sees consumer spending stagnating in 2009 and rising just 0.1% next year. Exports are forecast to fall 10.8% this year, while imports are expected to drop 8.3%. Fixed capital formation is seen falling 6.2% this year and 2.9% in 2010.

The jobless rate is expected to surge to 3.5% in 2009 from 2.6% in 2008. Thereafter, it is seen rocketing to 4.8% in 2010.

On March 17, the State Secretariat for Economic Affairs or SECO said the economy is expected to decline 2.2% in 2009, worse than the 0.8% contraction the government expected earlier.

In the fourth quarter of 2008, the Swiss economy had slipped into recession as global financial crisis took its toll on the country's exports and businesses. GDP fell 0.3% in the final three months of 2008, after declining 0.3% in the third quarter.

Citing sharp economic deterioration and a risk of deflation, the Swiss central bank had lowered its key interest rate near to zero on March 12. The Swiss National Bank cut the target range for the three-month Libor by 25 basis points, narrowing it to 0%-0.75% from the previous 0%-1%.

The central bank also took other aggressive monetary easing measures that include buying foreign currencies to prevent further appreciation of the Swiss franc. The central bank last intervened in foreign exchange markets in early 1990s.

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