ZEW-CS Financial Market Test Switzerland: Assessment of Current Condition Slightly Less Positive than in the Previous Month - ZEW Credit Suisse Indicator Regarding the Economic Outlook Continues its Decline to -21.3 Points

In the survey carried out by the Centre for European Economic Research (ZEW) in cooperation with Credit Suisse (CS) in November, the assessment of the financial market experts regarding the current situation of the Swiss economy was slightly less favorable after the indicator had reached the highest level since the survey was launched. The Credit Suisse ZEW indicator for expectations regarding the economic outlook fell again, to now -21.3 points. Still 11.5 percent of the survey participants expect further improvement of economic dynamics, while 32.8 percent expect the pace of growth to decrease.

The indicator for the inflation rate implies that - following the very low inflation data in October - a bigger percentage of survey participants expect higher inflation to come. Compared to the percentage of survey participants expecting further Swiss Franc weakness, significantly more participants (45.9 percent) expect the Swiss Franc to gain strength versus the Euro than to weaken further (8.2 percent). More than 80 percent of the survey participants expect further tightening by the Swiss National Bank.

The results of the Credit Suisse ZEW survey regarding the current economic situation in Switzerland once again underscore the very favorable picture at the present time. At 93.4 points, the relevant indicator edged down merely slightly below the October figure, when the reading presumably had reached its tentative zenith. On the other hand, the perspective for the future economic outlook revealed a more noticeable change versus the October assessment, although the momentum of the decline has weakened, similar to the survey for Germany. The economic expectations indicator continued to follow a downward path and now stands at -21.3 points. While 11.5 percent of survey participants expect economic momentum to improve further, 32.8 percent anticipate the situation will deteriorate. The rest of the respondents - considerably more than half - regard the continuation of the very upbeat economic situation for the next six months as the most likely scenario. Weaker economic momentum in the USA and more moderate growth in Europe reduce the external impetuses. However, growth in Switzerland appears to be underpinned across a broader front. The prevailing positive trend on the labor market, which has also provided a boost to consumer confidence, lends support to the contribution to overall growth emanating from private consumption, for example.

The trend in expectations for sinking inflation stopped for the time being this month. The survey respondents increasingly anticipate that inflation rates will climb in the coming six months. The relevant indicator now stands at 16.4 points, or 5.8 points above the reading recorded in the October survey. However, this should be viewed against the backdrop of the sharp drop in the inflation rate to just 0.3 percent (YoY) in October. The proportion of survey participants that expect the Swiss National Bank (SNB) to carry out another interest-rate hike increased slightly versus the previous assessment and now stands at 83.6 percent. Survey respondents seemed to view an increase in long-term interest rates as less probable, with only 50.8 percent expecting such a move.

Analysis of the survey results regarding expectations for the exchange-rate performance of the Swiss franc versus the euro indi-cates the participants still tend to presume that the franc will rather gain ground in the medium term. This comes in the wake of further Swiss-franc weakness compared with the previous month. Merely 8.2 percent of the respondents now anticipate that the Swiss currency will continue to lose terrain, while 45.9 percent believe that renewed strengthening of the franc is more likely. Interest rate differentials between the euro area and Switzerland are expected to remain unchanged by 75.9 percent of survey participants.

With the current assessment, the ZEW/Credit Suisse survey has now been carried out on a monthly basis for the last half year. Time to conduct a more thorough analysis of the results regarding the earnings outlook in the Swiss services sector. Similar to the diminishing expectations regarding the general economic picture, the overall indicator for the trend in corporate earnings in the services sector is falling too - although there are disparities among the individual sectors. The trend in the balances for the banking and insurance sectors is running primarily in line with the balance for the overall services sector. Earnings expectations for the insurance sector have been above average in the surveys conducted up to now. In contrast, the balance in the banking sector still stands slightly below the average of the overall sector. Earnings expectations for companies operating in the consumer/retail sector have surpassed the balance of the overall services sector for the first time in the current survey. On the other hand, forecasts continue to call for declining earnings in the telecommunications sector.

This month's special question dealt with the assessment of equity market developments. Details can be found in this month's edition of the Financial Market Report Switzerland.

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