ZEW–CS Financial Market Test Switzerland - Economic Expectations Remain Subdued, but the Assessment of the Current Situation Brightens up Slightly

The Financial Market Test Switzerland, carried out by the Centre for European Economic Research (ZEW) in cooperation with Credit Suisse, reveals a slight dampening of economic expectations in Switzerland. The relevant ZEW CS-indicator edges down slightly in December by 0.8 points to the -29.7 mark. At the same time, the assessment of the current economic situation improves by 4.5 points, reaching a threshold of 87.2.

The majority of survey participants expects short-term interest rates to hold steady on a six-month horizon, while 40.4 percent anticipate higher rates. The corresponding balance of indicators remains nearly unchanged at 36.1 points. Expectations regarding the stock market trend brighten up in December, with 60.8 percent (up 11.8 percent) of the experts predicting that the Swiss Market Index (SMI) will gain terrain in a six-month timeframe. This month's special question shows, among other things, that most of the financial market participants surveyed regard an economic growth rate in Switzerland of between 1.6 percent and 2.3 percent for 2009 as a realistic scenario. Moreover, the forecasts for inflation for 2009 provided by the analysts amounts to between 1.1 percent and 1.5 percent for the most part.

The results of the December survey of the ZEW Credit Suisse Financial Market Test Switzerland point to a prevailing positive picture of the overall economic situation in Switzerland. The lion's share of the financial market experts (87.2 percent) - up 4.5 percentage points versus the previous month - regards economic momentum as good, while the remaining 12.8 percent of respondents assess the current economic environment as normal. The ZEW CS-indicator of economic expectations is on a level of -29.7 points and thus 0.8 points below last month's level. Merely 4.3 percent of the experts anticipate that the economy will improve on a six-month horizon, while 34 percent forecast a deteriorating economic climate. The overriding majority of 61.7 percent of respondents expects an unchanged situation.

Inflation expectations have not changed significantly in this month's survey, with most participants (57.3 percent) predicting a higher inflation rate in the coming six months. 34 percent of the analysts presume that inflation will remain unchanged. The relevant indicator dips by 3.4 points to the 48.6 mark.

Expectations regarding short-term interest rates continue to sketch a similar pattern. The proportion of financial market experts surveyed who view rising short-term interest rates in the next six months as a probability still amounts to 40.4 percent. More than half of the respondents continue to expect no change in short-term rates, while 4.3 percent forecast a decrease. Consequently, 34.8 percent of the participants believe that the short-term interest rate differential between Switzerland and the Eurozone will narrow, and 15.2 percent think it will widen. The responses on long-term interest rates show that 55.3 percent (down 9.4 percentage points) of the financial experts view an increase as the most likely scenario. More than one-third (38.3 percent) of respondents see no change here, with the corresponding balance of indicators decreasing 9.9 points to reach 48.9.

The slightly easing situation on the global stock markets is manifested in a favourable forecast for the Swiss Market Index (SMI). The indicator for Swiss share prices rises by 17.7 points and now stands at 41.2 points. Around 60.8 percent (up 11.8 percent) of the financial market experts foresee a positive trend in stock prices. The remaining two-fifths of respondents are split each on whether share prices would hold steady at the current level or retreat in the medium term.

Regarding the future trend in the euro/Swiss franc exchange rate, around half of the experts (46.6 percent) expect the Swiss franc to gain ground against the euro, while the other half sees no change in the currency pair.

This month's survey sees significant changes in expectations for crude-oil prices, with many respondents predicting a cooldown in the coming six months. Indeed, 43.5 percent of the experts forecast sinking oil prices. The share of participants who believe oil prices will remain at a constant level rises considerably to 52.2 percent. Just 4.3 percent of the analysts anticipate climbing oil prices in the medium term.

The forecasts for gold prices currently paint a mixed picture according to the survey results: 37.8 percent of the respondents expect gold prices to increase, while on the other hand 28.9 percent regard a decrease as probable.

Most (73.3 percent) of the analysts see no change in terms of the future trend in the Swiss unemployment rate. However, 20 percent think the jobless rate will rise, and just 6.7 percent foresee a brighter labour market situation.

Forecasts for the return on sales for Swiss companies reveal that half of the participants expects the trend to remain the same, however, 45.5 percent anticipate a drop within the next six months. The question regarding the future trend in overall corporate earnings in Switzerland shows a similar pattern, with most of the experts (62.2 percent) anticipating no change and 31.1 percent expecting a slowdown.

Within the scope of the special question for December, the financial market experts were asked to convey their assessments regarding economic prospects as well as various measures of the economy and financial market in Switzerland. Roughly 65.8 percent of the respondents believe that GDP growth rates will amount to between 1.6 percent and 2.3 percent in 2009. Forecasts for inflation for 2009 reveal that 60.5 percent of the financial market analysts estimate a rate of between 1.1 percent and 1.5 percent, while 26.3 percent view an inflation rate of between 1.6 percent and 2 percent as a realistic outlook. Most of the survey participants anticipate that the Swiss franc will pick up a little ground against the euro as well as versus the US dollar on a 12-month horizon. 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