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Switzerland's leading economic indicators fell to the lowest level in almost five years in June as slowing global growth and record oil prices worsened the outlook for the economy.

The monthly aggregate of indicators that aims to predict the direction of the economy about six months ahead slid to 1.01 from a revised 1.08 in May, the KOF economic research institute said on its Web site today. That's the lowest since September 2003. Economists expected a decline to 1 from a previously reported 1.09, according to the median of 17 estimates in a Bloomberg survey.

Swiss economic growth is set to ease further as a slowdown in the U.S. and Europe cuts into exports and financial-market turmoil triggered by the U.S. housing crisis hurts banks' earnings. With record prices for raw materials like oil and natural gas fueling the fastest inflation in 15 years, the Swiss central bank may have limited room to lower borrowing costs this year.

“There will be a significantly smaller contribution to growth from exports this year,'' said Eoin O'Callaghan, an economist at BNP Paribas in London who forecast the gauge would fall to 0.95. Still, with inflation accelerating, the Swiss National Bank “may well have to hike in coming months because there's little prospect of headline inflation moderating anytime soon.''

Growth will probably slow to 1.9 percent this year and 1.3 percent in 2009, the government said June 23. Switzerland's economy grew 3.1 percent last year.

Six-Year High

The SNB left its benchmark rate on hold at a six-year high June 19 as central banks from Asia to North America shifted their focus from fighting the global credit squeeze to stamping out inflation cash till payday. Switzerland's economic expansion slowed to 0.3 percent in the first quarter, the weakest pace in more than three years.

The central bank, which aims to keep price growth below 2 percent, predicts Swiss inflation will slow to 1.7 percent in 2009 and 1.3 percent in 2010 from 2.7 percent this year if it keeps its key rate unchanged.

The bank “can afford to do so for the time being,'' SNB Jean-Pierre Roth said at a press conference in Geneva. “There is enough reason to suggest that the current inflationary trend is of a transitory nature.''

Slowing growth may weaken demand, relieving some pressure on prices. At the same time, the franc's 19 percent gain against the dollar in the past year is helping cushion the blow of higher oil and food prices.

Emerging economies are still boosting purchases of Swiss industrial products as they invest in infrastructure. Zurich- based ABB Ltd., the world's largest builder of electricity networks, said first-quarter profit soared 87 percent as China and India increased investment in power stations and grids.

Still, growth is easing in Europe, Switzerland's biggest export market. German business confidence fell to the lowest in more than two years in June as the prospect of higher interest rates dimmed the country's economic outlook.

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