The State Secretariat for Economic Affairs (Seco) has slashed its 2003 growth forecast to zero, down from 0.8 per cent announced in January.
Officials said the economy was expected to grind to a halt due to weak global demand and the strong Swiss franc.
"The lack of an upturn in the global economy, particularly the eurozone, and the still rather firm Swiss franc... continue to hold back the Swiss economy," Seco said in a statement on Friday.
Seco added that if the 1.1 per cent growth outlook for the eurozone was confirmed and the franc remained strong, Switzerland could not expect its economy to grow.
Germany, the powerhouse of Europe's economy, announced on Wednesday that its economy was officially in the throes of a recession.
In January, Seco had forecast that Swiss Gross Domestic Product (GDP) would increase by just 0.8 per cent this year.
The revised outlook reflects weak growth among industrialised and emerging nations.
The end of the war in Iraq has lifted some of the geopolitical uncertainty, lifting global equity markets and leading to a drop in oil prices.
However, Seco says many obstacles still have to be overcome before the economy can pick up.
Money owed on major investments made before the slowdown is hindering efforts to kick-start the economy, and stock market investors remain shy despite the slight rise in share prices.
Business was also slow during the first three months of the year and new orders dropped off.
Seco now expects unemployment to reach 4.2 per cent in 2003, versus 3.8 per cent previously.
This is in line with last week's forecast by the Swiss Institute for Business Cycle Research.
Private purchases are also expected to drop off, along with investments in production equipment.
Public investments should increase slightly, increasing from 0.1 per cent to 0.4 per cent.
Seco's outlook for 2004 is not much better, with expected growth reaching 1.6 per cent rather than the 1.9 per cent previously announced. Unemployment should remain stable at 4.2 per cent.
swissinfo with agencies
Seco had expected in January that GDP would grow by 0.8 per cent.
It now says that growth could be zero.
Unemployment should reach 4.2 per cent in 2003.
The outlook for 2004 is for 1.6 per cent growth, rather than 1.9 per cent as previously announced.
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