ZEW–CS Financial Market Test Switzerland - Economic Expectations Mostly Hold Steady at a low Level

The Financial Market Test Switzerland, carried out by the Centre for European Economic Research (ZEW) in cooperation with the Credit Suisse, revealed in April a nearly unchanged picture regarding the prospects for the Swiss economy compared to the previous month's survey. The relevant ZEW-CS-Indicator for economic expectations improved just slightly by 0.3 points to the -71.4 mark. Accordingly, the majority of respondents still anticipate that economic momentum will lose steam in the coming six months. On the other hand, the assessment of the current economic situation remains mostly upbeat (with the corresponding balance at 65.3 points). Precisely 38.8 percent of the survey participants expect no change in the inflation environment on a six-month horizon, while 24.5 percent (up 9.3 percent) expect a more moderate inflation rate in the future. Interest rate expectations remained unchanged for the most part in the April survey, with the lion’s share of respondents (73.5 percent) anticipating no change in short-term interest rates. The results of this month’s "special question" reveal that most of the financial experts forecast a lower current-account balance for 2008 in the wake of the record surplus registered last year.

The results of this month’s survey for the Financial Market Report Switzerland reveal that economic expectations turned out to be slightly more upbeat for the first time in five months, but continue to persistently hover deep in negative territory. Accordingly, roughly three-fourths of the financial market experts surveyed forecast worsening economic momentum on a six-month horizon. Merely 4.1 percent of the participants anticipate a brightening economic picture. Consequently, the relevant ZEW-CS-Indicator for economic expectations edged up by just 0.3 points to the -71.4 mark. The analysts continue to assess the current economic situation in Switzerland as very positive, with 65.3 percent of the respondents regarding the prevailing climate as "good" and 34.7 percent as "normal". None of the experts regards the economic environment as "bad". However, the corresponding balance of indicators dipped slightly by 4.3 points to the 65.3 level.

The financial market experts expressed markedly disparate opinions regarding inflation. Prevailing high oil prices, in particular, have recently led to a sharp surge in Swiss inflation rates, too. Hence, 36.7 percent of the respondents (up 6.3 percent month-on-month) expect inflation to continue to climb, while the number of analysts who foresee a decrease in inflation rose considerably as well, by 9.3 percent to 24.5 percent. The relevant indicator for the inflation rate therefore declined just a little, by 3.0 points to the 12.2 mark.

The balance of indicators for short-term interest rates slipped slightly, by 1.8 points to the -6.1 level. The vast majority of experts (73.5 percent) predict no change in near-term rates, while 10.2 percent of the respondents expect rates to rise, and 16.3 percent see interest rates falling in the coming six months. Regarding long-term interest rates, 43.8 percent (up 0.3 percent) of the survey participants are looking for an increase, and 56.3 percent (up 10.6 percent) anticipate no change in rates.

In the wake of regaining terrain at the end of March, the Swiss Market Index (SMI) has followed a weaker trend again recently. But more than half of the experts (55.6 percent) forecast that share prices will advance once again in the medium term. On the other hand, 22.2 percent of the analysts either believe the SMI will hold steady or think the index will decline, respectively. The corresponding balance of indicators therefore increased significantly by 15.1 points to the 33.3 threshold.

In terms of the trend in the Swiss currency, many survey participants still expect the Swiss franc to gain further ground, although this tendency is no longer as predominant as in the previous month’s survey. Merely 36.2 percent (down 9.2 percent) of the financial market experts predict that the uptrend in the value of the Swiss franc versus the euro will continue. Roughly half of the respondents (53.2 percent) see no change in the exchange rate. Hence, the relevant balance dropped by 13.6 points to the 25.5 level.

A clear majority of participants (58.7 percent) forecast that oil prices will not continue to waver at such a high level, but rather retreat again. Only 15.2 percent of the respondents (down 3.0 percent) expect the price of oil to advance further.

The proportion of analysts who think gold prices will continue to ascend also decreased by 11.4 percentage points to 36.2 percent. Around 40 percent of the experts still believe the price of the precious metal will decline.

With regard to companies’ profit margins, nearly 70 percent (up 11.5 percent) of the participants foresee a deteriorating situation as the most likely scenario. In contrast, merely 4.3 percent see a brightening of the corporate earnings picture.

Approximately 40 percent of the respondents view the labor market situation in a more pessimistic light on a six-month horizon, while on the other hand, 46.8 percent of the experts (down 17.6 percent) predict that the unemployment rate will remain unchanged in a six-month timeframe.

Within the scope of the April “special question,” the financial market experts were asked to convey their assessment of the development of the Swiss current-account balance in 2008. According to the opinion of 72 percent of the respondents, this year’s current account surplus will not reach the record high of 85.6 billion Swiss francs seen in 2007. Nevertheless, 42 percent of the survey participants expect a renewed net capital inflow in 2008 as well. 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.

For further information please contact

Dr. Gunnar Lang, 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