Geneva  - The Swiss government on Tuesday upgraded its economic forecast, but warned of weak growth in 2010 and higher unemployment, while trade was likely to remain hard hit by the global economic crisis.

A report from the State Secretariat for Economic Affairs noted that the global economy was recovering faster than anticipated as was Switzerland.

SECO estimated a decline in gross domestic product (GDP) of 1.7 per cent this year, instead of its previous forecast of a drop of 2.7 per cent.

For 2010, a "a weak GDP growth" of 0.4 per cent was expected along with rising unemployment.

Employment in Switzerland would "most probably decrease in the quarters to come" and not begin to rise before late 2010.

The annual average unemployment rate would likely hit 3.8 per cent this year, and rise to 5.2 per cent in 2010 before a recovery in the labour market would arrive.

Last week, the Swiss National Bank also revised upwards its forecast for Switzerland's 2009 GDP, expecting a 1.5-2 per cent decline. It had previously expected a drop of up to 3 per cent.

Both the central bank and SECO adopted cautious outlooks toward the global economy. As Switzerland depends largely on its exports and services sectors, the two institutions were hesitant about long term forecasts.

"It remains to be seen, however, whether next year the economy will be able to continue its dynamic positive growth when the stimulating impulses from financial policies start to diminish," SECO said in a statement.

"It is assumed that the international economy, after its first strong recovery, will run out of steam again in the course of 2010, which will also limit further economic recovery in Switzerland," the report said.

More write-offs of bank loans could occur, and the overall crisis in the banking and financial sectors could "not be expected to be overcome any time soon and could continue to represent an impediment to economic growth."

SECO statistics were devised by the federal government's Expert Group on Economic Forecasts in its Economic Tendencies and Forecasts publication.

Exports of goods and services were expected to pick up again "noticeably" next year, at 3.2 per cent, but would not be enough to close the gap following the 9.5 per cent projected decline this year.

Also Tuesday, Switzerland released trade data for August, which showed that the chemicals, pharmaceuticals, food, beverages and tobacco sectors made some gains in exports, but all other branches took heavy setbacks.

Meanwhile, the Federation of the Swiss Watch Industry said exports in the timepieces sector fell slightly less in August than in previous months.

Their value reached 842.6 million francs (823.35 million dollars), down 22 per cent when compared with the same month last year.

Aggregated watch exports since January stood at 8.1 billion francs, 25.9 per cent lower year-on-year.

In a reversal from July, watches in the lowest end range - those worth under 200 francs - fell the most, by up to 40 per cent. High- end watches, or those worth 500 francs or more, were, however, making a bit of a recovery, declining less than in previous months. (dpa)