ZEW-CS Financial Market Test Switzerland - Economic Expectations Brighten up

Economic prospects for Switzerland have brightened up slightly in September. This is one result of the latest Financial Market Test Switzerland, carried out by the Centre for European Economic Research (ZEW) in cooperation with Credit Suisse. Consequently, the ZEW-CS-indicator of economic expectations increased by 35.2 points to the -44.4 mark. Although roughly 11 percent of the respondents expect the picture to improve on a six-month horizon, more than 50 percent of the financial market experts still forecast that the economic environment will continue to be dampened. The analysts convey a somewhat more pessimistic assessment of the current economic situation compared with the previous month’s view. The corresponding balance declines in September by 8.7 points to the 17.8 level. Inflation as well as interest rate expectations diminished once again in the September survey, with the relevant balances dropping by 18.1 points to the -46.7 mark and by 4.8 points to the -6.8 level, respectively. In the interim, more than 20 percent of survey participants believe that short-term interest rates will decline in the coming six months. This month’s "special question" shows that the majority of respondents regard current valuation levels on the Swiss real estate market as appropriate.

The results of the September survey conducted in conjunction with the Financial Market Test Switzerland reveal that the forecasts of the financial market experts have brightened up considerably regarding economic momentum on the medium-term horizon. Although more than 50 percent of the respondents still expect some dampening of the economic picture, this group shrank by 26 percentage points compared with the previous month’s figure. One-third of the analysts foresee no change in economic momentum ahead. The relevant balance therefore increased in September by 35.2 points to the -44.4 mark. Merely around one-fifth (22.2 percent) of survey participants regard the current economic situation as "good," while nearly three-fourths (73.3 percent) of the experts view the prevailing economic environment as "normal." The corresponding balance declines as a result, by 8.7 points to the 17.8 level in September.

In the wake of following an upward trend since September 2007, the inflation rate in Switzerland has edged down slightly in the past month and thus seems to have traversed its highpoint. The proportion of analysts who predict that inflation rates will continue to retreat rose substantially, by 12.9 percentage points to the 57.8 percent threshold. Only 31.1 percent of the financial market specialists still see no change on the inflation front, while just 11.1 percent forecast an increase. Consequently, the balance for the inflation rate in Switzerland dropped considerably, by 18.1 points to the -46.7 mark.

According to 65.9 percent of the respondents, the most likely scenario calls for short-term interest rates to hold steady, although this group of experts decreased by 15.7 percentage points versus the previous month. There was an increase in the number of survey participants who believe that short-term rates will move higher (13.6 percent) as well as respondents who think lower rates are in the cards (20.5 percent). Most of the analysts (52.3 percent) anticipate that long-term interest rates will remain unchanged in the medium term as well. On the other hand, 29.5 percent of the participants (down 7.2 percentage points month-on-month) forecast climbing long-term interest rates. The relevant balance dipped a little by 2.9 points to the 11.4 level.

The Swiss Market Index (SMI) has moved along a relatively stable course, hovering at around the 7,100 mark for quite a long time. The majority of respondents (64.3 percent) expect share prices to gain terrain, while 23.8 percent of the experts predict that the SMI will lose ground. The stock market indicator edged down slightly by 0.3 points to the 40.5 mark. Noteworthy here is that the survey period extended only up until September 12, 2008, so the results do not take into account the severe share-price swings occurring on the stock market thereafter on the heels of the news flow surrounding US-based bank Lehman Brothers.

Precisely 53.3 percent of survey respondents (up 12.5 percentage points versus the previous month) foresee the Swiss franc picking up territory against the euro. In contrast, 37.8 percent of the analysts see no change in the CHF/EUR exchange rate, and merely 8.9 percent think the Swiss franc will give up ground to the euro. The corresponding balance therefore jumped by 11.7 points to reach the 44.4 level.

Since hitting record highs in July, the price of a barrel of oil has plunged sharply. The financial market specialists convey mixed opinions regarding the medium-term trend in oil prices: 29.5 percent of the experts view climbing oil prices as the likely scenario, compared with 34.1 percent who expect crude-oil prices to go down. The remaining 36.4 percent of participants forecast that oil prices will hold steady. The views on the part of the financial analysts regarding gold prices also paint a mixed picture, with most of the respondents (41.9 percent) anticipating that the price of the precious metal will rise. The proportion of experts who forecast sinking gold prices shrank noticeably from 46.7 percent to 30.2 percent. Hence, the relevant balance increased in September by 29.4 points to the 11.6 mark.

The majority of analysts expect to see a deteriorating situation with respect to corporate earnings as well as profit margins, registering percentages of 56.1 percent and 61.9 percent, respectively. However, at 36.6 percent (up 21.4 percentage points), noticeably more respondents foresee no change in the corporate earnings picture. The share of participants who predict no change in profit margins also increased considerably, by 15.9 percentage points to 33.3 percent. The survey results regarding the unemployment rate showed little change versus the previous month’s figures: 65.1 percent anticipate that the jobless rate will rise, while 34.9 percent see no change.

Within the scope of this month’s "special question," the financial market experts were asked to convey their assessment of the Swiss real estate market. According to 33 percent of the respondents, prices for commercial properties should continue to climb in the next five years, while 45 percent of the analysts predict that prices will hold steady. Half of the financial market specialists anticipate that residential real estate prices will advance on a five-year horizon.

The survey process and methodology

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.

Detailed results

More 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".

For further information please contact

Dr. Gunnar Lang (ZEW), E-mail: lang@zew.de

Fabian Heller (Credit Suisse), Phone: +41/44/33209061, E-mail: fabian.heller@credit-suisse.com