ZEW–CS Financial Market Test Switzerland - Current Economic Situation and Expectations Worsen

The Financial Market Test Switzerland, carried out by the Centre for European Economic Research (ZEW) in cooperation with Credit Suisse, reveals in November that the assessments of the current economic picture as well as economic expectations have diminished. Although analysts' evaluation of the current situation still stands at a high level of 82.7 points, the reading lags behind the previous month's mark by 11.3 points. The ZEW CS-indicator for economic expectations decreases in November by 12.9 points to the -28.9 threshold.

The balance of the indicators for inflation expectations rises 10 points in the current survey. At the same time, the balance of the indicators for short-term interest rate expectations edges down by 5.5 points. The survey participants foresee a somewhat worsening trend for the Swiss stock market compared with last month's view, but nearly half of the respondents still expect share prices to gain terrain in the future. Responses to this month's special question reveal, among other things, that most of the financial market experts regard forecasts for Swiss economic growth rates of between 2 percent and 2.3 percent for 2008 as realistic.

The results of the November survey of the ZEW Credit Suisse Financial Market Test Switzerland continue to point to an upbeat assessment of the country's overall current economic picture. The vast majority of the analysts (82.7 percent) - albeit down 11.3 percentage points versus the previous month - regard economic momentum as good. The remaining 17.3 percent of financial market experts assess the current economic situation as normal. The ZEW CS-indicator for economic expectations declines noticeably by 12.9 points to reach a balance of -28.9. In this case, merely 1.9 percent of the respondents still expect the economy to improve, 30.8 percent (up 6.8 percentage points) anticipate it to deteriorate. The overriding majority of 67.3 percent of survey participants forecast an unchanged economic trend on a six-month horizon. Most of the experts (55.8 percent) expect climbing inflation rates in the medium term. Another large percentage of respondents (40.4 percent) presumes that inflation will hold steady. The relevant indicator rises by 10 points to the 52.0 mark.

Expectations for short-term interest rates diminish in the November survey. The proportion of financial market experts who believe that a hike in short-term interest rates in the next six months is a probable scenario decreases by 7.6 percentage points and therefore amounts to 40.4 percent. Considerably more than half of the analysts (57.7 percent) expects no change in short-term interest rates. On the other hand, the balance of the indicators for the short-term interest rate differential between Switzerland and the Eurozone drops by 12 points to the -28 level. However, the majority of survey participants (60 percent) continues to forecast no change in the interest rate spread.

Regarding long-term interest rates, precisely 64.7 percent (up 6.7 percent percentage points) of the financial market experts think that an increase is the most likely scenario. Somewhat fewer participants (29.4 percent) anticipate no change. Hence, the corresponding balance of indicators edges up slightly by 2.8 points to the 58.8 mark.

On the heels of a brief recovery, the Swiss Market Index (SMI) has been losing ground since the beginning of October amid an environment marked by growing uncertainties on the global stock markets. However, nearly 50 percent of the experts believe that share prices will advance again in the medium term. In contrast, roughly one-fourth (25.5 percent) of the respondents expects either no change or sinking stock prices, respectively.

In the wake of hitting its high point of 1.68 EUR/CHF at the end of October, the Swiss franc exchange rate versus the euro has broken its trend for the time being, declining below the 1.64 level in the interim. About 63.4 percent of the analysts forecast that the Swiss currency will gain terrain (up 8.3 percentage points month-on-month), while 30.8 percent of the experts assume that the value of the Swiss franc compared with the euro will remain unchanged. Consequently, the balance of the indicators for this exchange rate increases by 12.7 points to reach 57.6.

Expectations regarding crude-oil prices have changed significantly as well against the backdrop of spiking to new highs in recent weeks. In the November survey, only around one-third (31.3 percent) of respondents predicts the price of a barrel of oil to rise. On the other hand, 47.1 percent (up 23.7 percentage points) of the analysts believe that sinking oil prices is a more probable outcome. The relevant balance of indicators plunges sharply by 37.1 points to a new threshold of 57.6.

Within the scope of the special question for the November survey, the financial market experts were asked to convey their assessments regarding real growth in Swiss gross domestic product (GDP). Roughly half of the respondents (52 percent) views a growth rate of between 2 percent and 2.3 percent as realistic, while 17 percent estimate that Swiss GDP will grow at a rate of more than 2.3 percent.When asked to express their assessments of the competitiveness, 53 percent of the respondents view Switzerland's competitiveness as very good. In terms of percentage, the experts surveyed regarded Switzerland's greatest competitive advantages to be the quality of education and employees (33 percent). 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.

Contact

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

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