ZEW-CS Financial Market Test Switzerland - ZEW Credit Suisse Indicator Regarding the Current Situation Still at a High Level, Economic Outlook More Optimistic Again

The results of the latest monthly ZEW Credit Suisse survey reveal a slight increase of the very positive assessment of the economic situation in Switzerland. Regarding the economic outlook the survey participants tend to paint a more optimistic picture.

The ZEW Credit Suisse indicator rises to -3.5 points after attaining -28 points in March. After the Swiss National Bank (SNB) raised its interest rate target to 2.25 percent last month, a clear majority of the participants (88.1 percent) expects a further increase of interest rates. Compared to the previous month, a larger share of the participants (13.5 percent) assumes that the tendency of a weaker Swiss franc will continue, however, a majority of 59.3 percent still forecasts a stronger Swiss currency versus the Euro in six months time. Inflation expectations increased slightly, the indicator stands at 44.0 points.

The results of this month's ZEW Credit Suisse survey reveal an even brighter picture regarding the assessment of the current economic situation in Switzerland, from an already high level. The corresponding indicator improved by 3.2 points versus the previous month's reading, rising to the 93.2 mark. The indicator of expectations for the future economic outlook turned out to be considerably less negative than the March figure, increasing by 24.5 points to the -3.5 level. Merely 13.6 percent of the financial market experts surveyed anticipate that economic momentum will worsen (down 20.4 percentage points versus the previous month), while 10.1 percent (up 4.1 percentage points month-on-month) expect an improvement in economic momentum on a six-month horizon. On the other hand, more than three-fourths of the respondents presume the positive economic situation will remain unchanged.

Roughly, half of the survey participants regard an increase in inflation from the current very low level as the most likely scenario. About 42.4 percent of the experts believe inflation rates will remain nearly unchanged (down 7.6 percentage points compared to March).

In the wake of the recent interest-rate hike by the SNB, an almost unchanged, still-high proportion of respondents (88.1 percent) predict that rates will likely continue to climb further. Around 11.9 percent of the experts expect no change in rates, and once again, none of the participants foresees an interest-rate cut. While 79.7 percent of those surveyed do not believe that the interest-rate differential versus the euro zone will change, 6.8 percent (down 7.5 percentage points compared with the previous month) predict the spread will decrease.

The lion's share of respondents (72.9 percent) forecast an increase in long-term interest rates, with the corresponding indicator rising by 2.2 points to the 69.5 mark. Roughly one-fourth (23.7 percent) of the experts foresee no change in long-term rates.

Following the substantial rises in share prices in recent weeks, the Swiss Market Index (SMI) has recouped nearly all the ground it had lost during the slump at the end of February. About 48.3 percent of the survey participants expect the SMI to gain further ground, though this figure is down 6.8 percentage points from the previous month. The share of respondents that expect the Swiss stock index to remain at the current high level increased by 9.7 percentage points to 36.2 percent, while 15.5 percent of the experts expect a retreat in share prices on a six-month horizon. So overall, the balance for expectations regarding the trend in the SMI declined by 3.9 points to 32.8.

After a brief phase of appreciation during the heightened state of volatility on the financial markets from end-February to mid-March, the Swiss franc has continued to follow the trend toward depreciation that commenced in May last year. The latest survey results show that the proportion of participants who expect the Swiss franc to lose further ground and thus foresee the continuation of the prevailing trend increased by 5.6 percentage points to 13.6 percent. However, this does not change the fact that the majority of respondents (59.3 percent) still forecast that the Swiss currency will regain ground versus the euro in the future. But on balance, the corresponding indicator for the Swiss franc/euro exchange rate edged down by 4.3 points to the 45.7 level.

In the meantime, oil prices have hit their highest point since September of last year, fueled by geopolitical uncertainties, among other factors. The predominate proportion of respondents (47.5 percent) anticipate that oil prices will hold steady at a high level on a six-month horizon, while a lower share of survey participants (37.2 percent, down 9.7 percentage points month-on-month) predict that prices for a barrel of oil will continue to climb. Hence, the relevant overall indicator dropped by 14.8 points to the 21.9 mark.

This month's special question dealt with the assessment of equity market developments in 2007 and accordingly the preferred sector allocation in this environment. Details can be found in this month's edition of the Financial Market Report Switzerland (see 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.

The 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" (see link below).

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