ZEW-CS Financial Market Test Switzerland - Economic Expectations Clearly Less Pessimistic

The latest survey carried out by the Centre for European Economic Research (ZEW) in cooperation with Credit Suisse reveals that the assessment of the current economic situation in Switzerland has brightened up. The majority of 94 percent (up 11.6 percentage points) of the financial market experts believe that the Swiss economy is in good shape at present. At the same time, the ZEW CS-Indicator for economic expectations improves as well, rising by 10.7 points to the -16 mark. Hence, survey participants continue to expect economic momentum to diminish, albeit to a much less pronounced extent than in September.

The balance of the indicator for expectations regarding short-term interest rates edges up by 6.4 points in October, with a respective 48 percent share of experts anticipating either a rate hike or unchanged interest-rate level. Analysts' assessments regarding the trend in the banking sector have now improved somewhat again compared with the September survey. Although the majority of experts (62.2 percent) still expect the situation to worsen, the balance of the relevant indicator surges by 22.4 points compared to September.

The results of the October survey of the ZEW Credit Suisse Financial Market Test once again paint a very positive picture of economic momentum in Switzerland. The overwhelming majority of the financial market experts surveyed (94 percent) regard the current economic situation in Switzerland as good. Merely 6 percent of the survey participants assess the Swiss economic environment as normal. The corresponding indicator thus rises by 13.4 points to the 94 mark. After the sharp decline in the ZEW CS-Indicator for economic expectations in September, the October reading climbs noticeably by 10.7 points to the -16 level. The improvement is attributable to the fact that only 24 percent (versus 33.9 percent the previous month) of the financial market experts currently expect Swiss economic momentum to worsen. The majority of experts (68 percent) forecasts no change in the future economic situation.

Roughly 58 percent of the survey participants believe that a steady inflation rate is the most likely scenario, while 42 percent of the respondents think that inflation will rise further. None of the experts forecast a lower inflation rate. Consequently, the balance of the relevant indicator increases by 5.1 points to the 42 mark.

Regarding short-term interest rates, 48 percent (up 1.5 percentage points) of the financial market experts anticipate that rates will advance, while another 48 percent of respondents expect no change in the three-month interbank rate in the medium term. The prevailing uncertainties on the financial markets also play a significant role with regard to the interest-rate differential between Switzerland and the eurozone. The vast majority of analysts predicts no change in the differential in short-term rates, although 28 percent of the experts (down 7.7 percentage points month-on-month) foresee a narrowing of the corresponding interest-rate spread.

A noticeably higher percentage of survey participants (58 percent) believe that an increase in long-term interest rates is probable. The balance of the relevant indicator for long-term rates rises by 8.7 points to reach 56.

Since the slump in Swiss share prices in July und August, the Swiss Market Index (SMI) has gained considerable terrain. Most of the analysts (63.2 percent) expect the SMI to continue to advance, while 18.4 percent of the experts see no change in the index and the same percentage is looking for a decline in Swiss stock prices. The corresponding indicator increases by 9 points to 44.8.

The Swiss franc has followed a renewed strong downtrend versus the euro since August. With a share of 55.1 percent, 6.3 percent less participants compared to September, anticipate that the Swiss currency will undergo a turnaround in the medium term and gain ground against the euro. On the other hand, 34.7 percent (up 3.1 percentage points versus last month) of respondents foresee no change in the CHF/EUR exchange rate. The corresponding indicator decreases by 9.5 points to 44.9.

The price of a barrel of North Sea Brent crude oil continues to hit new record highs, due to the recent surprisingly low inventory levels in the USA and the upcoming winter season. Despite the current surge in oil prices, 44.7 percent (up 1.1 percentage points) of the financial market experts believe oil prices will continue to climb further. About 31.9 percent of respondents see no change in the price of a barrel of oil, and 23.4 percent of participants expect a drop in prices on the oil market. The relevant indicator now stands at 21.3 points.

While 73.1 percent of the analysts in the last month's survey anticipated the situation in the banking sector to worsen, against the backdrop of the financial market crisis, sentiment has brightened up in the current survey. Now, 62.2 percent of the experts foresee further deterioration of the situation, whereas 13.4 percent (up 11.5 percent percentage points compared to September) expect an improvement. The corresponding indicator surges noticeably by 22.4 points to the -48.8 level.

This month's special question relates to the assessment of the Swiss labour market situation, the trend in wages and effects on inflation and profit margins. The responses indicate that the lion's share of 91 percent of survey participants perceives a shortage of qualified workers in Switzerland. Moreover, 55 percent of the experts anticipate accelerating growth in wages due to the tight supply of labour. However, a thin majority of respondents believes that this will not lead to either intensifying inflationary pressure or shrinking profit margins. 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