ZEW-CS Financial Market Test Switzerland - Expectations Regarding the Future Economic Outlook Decline Slightly

The survey of financial market experts, carried out by the Centre for European Economic Research (ZEW) in cooperation with Credit Suisse, reveals that the participants continue to assess the current economic situation as very favourable. At 93.6 points, the corresponding indicator edged down just slightly below the previous month's level.

The ZEW Credit Suisse indicator for expectations regarding the future economic outlook declined 2 points to -2.1 in the current survey. Inflation expectations rose merely marginally in July. The share of respondents who anticipate that short-term interest rates will advance on a six-month horizon remained practically unchanged at the high proportion of 93.6 percent. The number of survey participants who expect the Swiss franc to gain terrain against the euro in the medium term increased by 5.1 percentage points to 59.5 percent. An analysis of this month's special question shows that 65 percent of the experts forecast an average real growth in Swiss gross domestic product of 2.5 percent for 2007. Furthermore, the majority of respondents (53 percent) assess Switzerland's competitiveness versus other European countries as very good.

The lion's share of the experts (93.6 percent) assesses the state of the Swiss economy as good. As in the previous months, none of the respondents regard the economic situation as bad, while 6.4 percent view current conditions as normal. Regarding the future economic trend, expectations diminished just slightly versus the June survey, with the relevant indicator edging down by 2.0 points to the -2.1 mark. While 12.8 percent of the analysts anticipate that the economy will brighten up further, 14.9 percent of the participants (up 4 percentage points month-on-month) foresee worsening of the economic prospects. However, the majority (72.3 percent) of respondents presumes that the economic outlook for the coming months will remain unchanged.

More than half of the analysts (59.6 percent) forecast an increase in the inflation rate in the months ahead. In contrast, 40.4 percent of the participants expect inflation to hold steady at a very low level on a six-month horizon. With regard to short- and long-term interest rates, the experts share a mostly unanimous view in this month's Financial Market Test Switzerland: 93.6 percent and 82.6 percent presume that short-term as well as long term rates will advance, respectively. Just 17.4 percent expect long term interest rates to remain at the current level. None of the respondents anticipate that short- or long-term rates will decline.

Roughly one-fourth (23.9 percent) of the experts (up 10.9 percentage points versus June) expects the short term interest-rate differential between Switzerland and the eurozone to narrow in the coming months, while 69.6 percent see the spread remaining constant. Merely 6.5 percent of the analysts foresee widening of the interest-rate difference, so the balance of the corresponding indicator fell by 6.6 points to the -17.4 level. The assessment of the long-term interest-rate differential sketches a similar pattern: 72.3 percent of the respondents think the spread will remain unchanged, 19.1 percent see narrowing and 8.6 percent forecast widening of the differential, corresponding to an increase in the balance of the indicator by 4.7 points to the -10.5 mark.

Most of the survey participants continue to maintain an optimistic stance regarding the trend for the Swiss stock market, although the relevant indicator declined somewhat compared with the previous month, dipping to the 43.5 threshold. Around 58.7 percent of the experts assume that the Swiss Market Index (SMI) will gain further terrain, while 26.1 percent see the index holding steady and 15.2 percent expect the Swiss stock market to lose ground (still up 1.9 percentage points month-on-month).

Two-thirds of the analysts (5 percentage points more than in June) believe that the Swiss franc will pick up territory against the euro in the coming six months, and 27.7 percent think the exchange rate will remain unchanged. Only 6.4 percent of the respondents forecast further deprecation of the Swiss currency. Consequently, the balance of the relevant indicator rose by 5.1 points to the 59.9 level.

Roughly half of the experts (down 13.1 percentage points month-on-month) currently anticipate a further spike in oil prices. On the other hand, 28.3 percent of the participants (up 15.3 percentage points versus June) say its probable that the price of oil will retreat by year-end, so the corresponding balance of the indicator dropped by 28.4 points to reach 19.5.

Similar to the July 2006 survey, this month's special question also addressed, among other things, the assessments regarding the competitiveness of other economies as well as the earnings potential of various business sectors. The results revealed that Switzerland once again ranks high on the list of countries with a strong competitive edge. The survey participants view Switzerland’s skilled workforce as one its competitive advantages. And the respondents regard the industrials as the sector with especially positive earnings prospects. Details can be found in this month's edition of the Financial Market Report Switzerland (see Link 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 (Credit Suisse), Phone: +41/44/3335062, E-mail: thomas.herrmann@credit-suisse.com 

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