By John Revill
ZURICH (Reuters) - The Swiss government lowered its economic growth outlook for 2017 on Tuesday, saying the recovery from a currency shock two years ago had lost pace late last year.
The State Secretariat for Economic Affairs (SECO) said in its latest quarterly forecasts it now expected economic growth of 1.6 percent in 2017, down from its view of 1.8 percent in December.
The downward adjustment followed a "sluggish close of 2016", SECO said, and came as the Swiss exports fell in February in real terms which take into account product and price changes.
"The Swiss economy has temporarily lost momentum in its recovery from the effects of the sharp rise in the Swiss franc in early 2015," SECO said.
That was when the Swiss National Bank dropped its cap on the franc at 1.20 to the euro (EURCHF), sending the currency soaring.
Export sectors such as the watch and plastics industries continued to struggle, while the pharmaceuticals and textiles sectors saw an uptick in shipments abroad, trade data showed.
Despite its reduced forecast, SECO said the recovery had not stalled. It expected growth to accelerate in the quarters ahead.
"There is not a grim outlook behind the lower forecast. We are entering this year with less speed and we have more ground to make up," said Ronald Indergand, head of short-term analysis at SECO.
"In the first few months of 2017 we are seeing positive signs from almost all leading industry indicators, including industry, and we are seeing a gradual improvement in internal demand in Switzerland and a stronger development abroad."
SECO still expected growth of 1.9 percent in 2018. This meant the Swiss economy "would continue to recover at a solid albeit not exceptionally strong rate", SECO said.
The KOF Institute think tank said it expected Swiss GDP to rise 1.5 percent in 2017 and 1.7 percent next year.
The export-dominated Swiss economy, which normally grows at an annual rate of around 1.7 percent, has been battling with the strong franc that makes exports more expensive.
The SNB has stepped up currency intervention to stem further rises in the safe-haven currency, which has attracted investors concerned about political uncertainty in Europe.
Still, the high value of the franc remains a headache for two-thirds of industrial companies surveyed by consultancy EY.
"The massive appreciation of the Swiss franc has accelerated the relocation of production abroad," said Christian Schibler, sector head for industry at EY. "Not all companies will be able to find their feet again and weak companies will disappear."
(Reporting by John Revill; Editing by Alison Williams)