ZEW–CS Financial Market Test Switzerland - Positive Assessment of Current Economic Situation, While Expectations for Future Development Deteriorate Further

The Financial Market Test Switzerland carried out by the Centre for European Economic Research (ZEW) in cooperation with Credit Suisse (CS) in September confirms the overall positive sentiment that has prevailed since the launch of the survey. The current situation is judged to be good by 86.2 percent - only slightly less than in the previous month (90.2 percent). The indicator regarding expectations for economic development falls to 1.8 points in the September survey (in August 16.3 points). Fewer participants than in the previous month expect short term and long term interest rates to rise. Respondents on average expect oil prices to decline further. Accordingly inflation expectations have declined significantly with now 41.4 percent anticipating inflation to rise further in Switzerland (down from 59.0 percent in the previous month).

The financial market experts still give a very favourable assessment of the current economic situation in Switzerland. The corresponding indicator now stands at 84.5 points (5.7 points down from the August figure). The sentiment regarding the assessment of the future prospects for the Swiss economy deteriorated for the second consecutive time. The amount of the decrease (14.5 points) is even more pronounced than in the previous month, resulting in only a slightly positive indicator of 1.8 points. Only 19 percent of the participants expect economic momentum to improve further, whereas 63.8 percent of the participants anticipate no change, and 17.2 percent expect the situation to worsen. This assessment could be interpreted as a sign that the dynamics of the economic development will probably slow down in the medium run as the world economic prospects and monetary conditions become less positive.

Significantly fewer participants than in the previous survey believe that inflation will rise over the medium term. The relevant indicator declined by 21.3 points and now stands at 32.8 points. As part of its quarterly monetary assessment the Swiss National Bank (SNB) has also given a more favorable outlook regarding inflation. The participants’ more positive outlook regarding inflation is also underpinned by expectations for oil price developments. For the first time since the start of the survey a higher percentage of the participants thinks that oil prices will decrease.

The SNB raised interest rates again by 25 basis points on September 14, the fourth rate hike since last December. The percentage of respondents expecting further rate increases declined. However, most of the participants still regard continuation of the policy of gradual interest rate adjustments as likely. The survey participants also forecast long term interest rates to continue to rise. However, the results of the survey show a slight rethinking, because the percentage of those expecting interest rates to remain constant is on the rise.

During recent weeks the Swiss franc weakened to a level of around 1.59 vs. the euro (the lowest since March 2000). The results concerning the estimated exchange rate development of the franc vs. the euro show that 39.7 percent of survey participants expect an appreciation of the franc, and only 10.3 percent regard further depreciation as likely. This brings the indicator to 29.4 points – a decrease of 5.1 points in comparison with the previous month.

The assessments of the future earnings situation for the Swiss services sectors are in general lower than in the previous months. While 19 percent of the participants expect further improvement of the economic situation during the next six months, 38.5 percent forecast an increase of profits in the services sector over the same period.

In this month's special question, the participants were also asked whether the increase in Swiss capacity utilization, which several indicators point to, will lead to price pressures. Only 36 percent of the participating experts agreed; 64 percent denied the statement. Most participants (80 percent) believe that higher capacity utilization is likely to trigger higher investment spending.

The Survey Process and Methodology

The ZEW has conducted a similar monthly survey for Germany since 1991. The aim of the Swiss survey is to develop indicators both for Switzerland's general economic climate as well as for the Swiss services sector.

Specifically, survey participants are asked to give their medium-term expectations for important international financial markets as regards the development of the economy, the inflation rate, short- and longer-term interest rates, equity prices and exchange rates. In addition, the financial experts are also asked to assess the earnings situation of companies in the following Swiss services sectors: banks, insurance, consumer/retail, telecoms, and services as a whole.

The results represent the net difference between the percentage of positive and negative responses. Figures in parentheses show the changes for each indicator compared to the previous month.

The detailed results can be obtained from the "Switzerland Financial Market Report", which is published on a monthly basis.

Contact

Gunnar Lang (ZEW), Phone: +49/621/1235-372,  E-mail: lang@zew.de  

Thomas Herrmann (CS), Phone: +41/44/333-5062, E-mail: thomas.herrmann@credit-suisse.com