ZEW-CS Financial Market Test Switzerland - Economic Expectations Rise to a Neutral Level

The results of the latest ZEW Credit Suisse survey reveal a still very positive assessment of the economic situation in Switzerland. Although the corresponding indicator decreased by 3.9 points, the level of 89.3 points remains high. Regarding the economic outlook the survey participants are again more optimistic than in the previous month and the ZEW Credit Suisse indicator is up 35 points, thus leaving the reading at 0.0 points. Interest rate expectations remained unchanged compared to the April reading, and almost 90 percent of the participants anticipate a rise of short-term interest rates. In the latest survey, more experts anticipate the Swiss franc to strengthen versus the Euro. In terms of inflation expectations, the share of participants that expect an unchanged inflation rate increased above the 50 percent mark in May.

This month's ZEW Credit Suisse survey revealed that the financial market experts continue to assess the current overall economic situation in a very positive light, albeit slightly weaker than in the previous month. The corresponding balance edged down by 3.9 points to the 89.3 mark, meaning that 89.3 percent of the analysts regard the prevailing economic picture as favourable, while 10.7 percent view it as normal. As in the previous months, still none of the survey participants sees the present situation as poor. The indicator for economic expectations improved by 3.5 points to balance the scales at exactly the 0.0 threshold. Precisely 14.3 percent of the respondents expect the overall economic outlook to brighten up, while the same percentage anticipates that the situation will worsen. However, the lion's share (71.4 percent of the analysts) view an unchanged economic environment on a six-month horizon as the most likely scenario.

Despite the risk that Swiss franc weakness could lead to higher import prices, merely 46.4 percent of the respondents - down 4.4 percentage points versus the April reading - expect rising inflation rates. At 51.8 percent a little more than half of the participants forecast unchanged low inflation rates.

Regarding short-term interest rates, the vast majority (87.5 percent of financial market experts anticipates a rate hike. A robust economy - which should grow at a pace of 2 percent in the current year, according to the forecast released by the Swiss National Bank (SNB) - coupled with slightly stronger inflation expectations, was probably the decisive factor for the increasing anticipation for higher interest rates. Only 12.5 percent of the analysts foresee short-term rates at an unchanged level. None of the survey participants expects an interest-rate cut against the backdrop of the prevailing inflation expectations. However, just 14.5 percent of respondents believe that narrowing of the interest-rate differential between Switzerland and the Eurozone is in the cards, while 74.5 percent of the experts anticipate that the differential will hold steady.

Analysts, for the most part, share the same view regarding long-term interest rates too, with a majority of 80 percent predicting an increase. Just 18.2 percent view an unchanged interest-rate level as the likely scenario. Consequently, the balance of the corresponding indicator rose by 8.7 points to the 78.2 mark.

Favourable financial reports released by many companies listed on the Swiss Market Index (SMI) underpinned the stock index in May. Several of the SMI companies surpassed analysts' earnings expectations, thereby painting a positive picture for the Swiss stock market. Survey participants also expect the SMI to continue to advance in the future as well. The corresponding indicator increased strongly in May, by 5.5 points to the 38.3 level. More than half (52.8 percent) of the experts believe the SMI will gain terrain, while merely 14.5 percent see the Swiss stock index losing ground in the future.

This month's survey also revealed a clear trend in the assessment of the Swiss franc/Euro exchange rate: 62.5 percent (up 3.2 percentage points month-on-month) of the respondents expect the Swiss currency to appreciate versus the Euro. One-fourth of the participants foresee no change in the exchange rate, and just 12.5 percent forecast further depreciation of the Swiss franc. The balance of the corresponding indicator rose by 4.3 points to reach 50.

Notwithstanding the recent spike in oil prices, 47.3 percent of the analysts are looking for a further spurt on a six-month horizon - an increase of 10.1 percentage points month-on-month. Roughly 41.8 percent of the respondents regard unchanged oil prices as the likely scenario. As a result, the relevant indicator climbed noticeably, by 5.4 points to the 20 mark.

This month's special question dealt with the assessment of the possibility of passing on higher costs to consumers. The participants were also asked about their views regarding future inflation and the interest rate policy of the SNB. Details can be found in this month's edition of the Financial Market Report Switzerland (see below).

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 - including survey participants' assessment of developments in other countries - can be found in this month's edition of the "Switzerland Financial market report" (see link below).

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 

Fabian Heller (CS), Phone: +41/44/3329061, E-mail: fabian.heller@credit-suisse.com