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ZURICH (Thomson Financial) - Switzerland's economy is unlikely to escape from the recent turbulence in the global financial market but the issue is how badly it will be hit, said vice-president of the Swiss National Bank Philipp Hildebrand in a speech in Bern.

The Swiss economy is still growing strongly by 2.5 pct, but risks to the overall positive development are higher, said Hildebrand.

With the economy past the zenith of its cycle, the SNB sees a higher risk that it will be impacted by a slowdown in the financial sector if uncertainty continues in credit markets. The Swiss insurance and credit markets account for about 14 pct of the overall economy and have a significant impact on the strength of the economy, said Hildebrand.

The sub-prime crisis that triggered the credit market turbulence is undoubtedly not yet over, he added.

Moreover, the SNB also sees more risk linked to a global economic slowdown, which the Swiss economy would not be able to avoid. Hildebrand pointed to the IMF's global economic growth rate forecast, which was recently revised down to 4.8 pct, from 5.2 pct.

There is also more downside seen in the possibility of a slowdown in the euro zone and Germany, Switzerland's biggest trading partners, both of which have also passed the zenith of their economic cycles, he said.

Hildebrand said that regulatory measures to handle future financial crises are being considered by the G7 nations, which have asked the Financial Stability Forum to come up with proposals that can be turned into legal procedures for authorities to follow.

Commenting on the currency exchange rate of the Swiss franc against the euro, he said it has supported export activity to the euro zone and contributed to a higher GDP.

The SNB does not follow a specific exchange rate target, but if currency exchange becomes a risk to price stability, the SNB's monetary policy may be reconsidered, he added.

sarah.fenwick@thomson.com

sf/ra

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