Geneva  - The Swiss economy is expected to contract by 2.7 per cent in 2009, the State Secretariat for Economic Affairs (SECO) said Wednesday, in the second time the forecast has been downgraded this year.

A previous forecast in March had predicted a 2.2 per cent decline in Gross Domestic Product in 2009 and a slim expansion of 0.1 per cent next year. The downgrade now expects 2010 to see a continued contraction, with likely contraction of 0.4 per cent.

The harshest global economic crisis in 60 years has hit Swiss exports, a backbone of the economy, particularly hard.

The forecast expected exports to decline by more than 10 per cent this year, in spite of drastic moves by the central bank to lower interest rates and weaken the franc, which was meant to allow for more favourable trade conditions with the eurozone.

Switzerland's financial sector has also been affected by fraud allegations against major banks and the relaxing of banking secrecy.

Unemployment in the Alpine nation will continue to rise, the report said, hitting 3.8 per cent this year and 5.5 in 2010.

The Federal Council - the executive power in Switzerland- said it would propose to parliament another 400 million francs (368.3 million dollars), as part of a third stimulus package.

Earlier this year, the International Monetary Fund recommended Switzerland pass a third such package.

Approval by parliament would raise the total cost of the third round of stabilization measures, aimed this time on the declining labour market, to 750 million francs.

The government has pumped similar amounts into the economy twice since last November. The measures also included social aspects, such as aid for health insurance premiums.

The International Labour Organization has warned that global unemployment is on the rise and called for governmental interventions to lessen the burden on citizens.(dpa)