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

In the survey carried out by the Centre for European Economic Research (ZEW) in cooperation with Credit Suisse, the surveyed financial market experts continue to regard the current situation of the Swiss economy as very favourable and the corresponding indicator stays at an almost unchanged level of 90.4 points.

However, regarding the economic outlook the survey participants tend to paint a somewhat more pessimistic picture. The ZEW Credit Suisse indicator falls to -17.3 points after it attained -10.8 points in January. 7.7 percent of the survey participants see further improvement of economic dynamics, while 25 percent expect the pace of growth to decrease. 46.2 percent of the survey participants - again less than in the previous month - expect the Swiss Franc to gain strength versus the Euro, while 11.5 percent expect further weakness in this regard. In the currently low inflation environment, considerably more participants (44.3 percent) anticipate inflation to increase. The answers of this month's special question show that more than half of the participants assume Swiss GDP growth to range from 1.5 to 2.0 percent in 2007 and 2008. 64 percent of the financial market experts think that interest rate level will rise to 2.25 percent in the next 3 months.

An analysis of the latest ZEW Credit Suisse survey confirms the participants' overall positive assessment of the present economic situation in Switzerland. The corresponding indicator still remains at a high level, but worsened just marginally versus the previous month, dipping by 1.9 points to the 90.4 mark. The deteriorating evaluation of the current economic situation in Switzerland's key export markets of the eurozone and USA paints a similar picture.

With an indicator reading of -17.3 points (down 6.5 points versus the January survey), the economic prospects diminished again on balance following the improvement in the previous month. The relevant indicator continues to point to a slowdown in economic momentum. While just roughly 8 percent of the survey participants expect a stronger economic momentum, one-fourth of the respondents regard a cooldown as the most likely scenario. Around two-thirds of the analysts forecast a continuation of the positive overall economic situation.

In the wake of the extraordinarily low inflation data of merely 0.1 percent (YoY) in January, inflation expectations increased despite the trend toward an economic cooldown and lower oil prices versus the previous year. Precisely 44.3 percent of the analysts anticipate higher inflation rates, corresponding to 14.6 percent more than in the previous month. The indicator for the inflation outlook showed a jump of 23.6 points and now stands at 42.4 points. The lion's share of the respondents - namely 86.5 percent - expect the Swiss National Bank (SNB) to continue to hike interest rates.

A total of 67.3 percent of the financial market experts surveyed presume that bond yields will likely continue to climb (up 7.9 percent month-on-month). Only 5.8 percent of the participants forecast a decline and a good 25 percent expect no significant change in yields.

On the heels of a robust stock-market trend last year and at the outset of 2007, respondents believe that the Swiss Market Index (SMI) will continue to gain further ground in the coming six months. Merely 19.6 percent assess the outlook for the SMI as negative. On the other hand, 58.8 percent (up 8.9 percent versus the previous month) are looking for a continuation of the favourable stock-market trend, while 21.6 percent anticipate that the index level will not change significantly in the next half-year. An analysis of the survey results with regard to the trend in the Swiss franc/Euro exchange rate reveals that the corresponding indicator reading dipped by 2.2 points to the 34.7 mark. As in the previous month, roughly half (46.2 percent) of the survey participants expect the Swiss franc to gain terrain against the euro.

Following the continued substantial slide in oil prices to a little more than USD 50/barrel up until mid-January, almost half of the respondents (down 5.6 percent month-on-month) now - following the renewed rise to around 60 USD/barrel - assume that the price of oil will resurge again. Just 15 percent share the view that oil prices will drop further. The overall indicator stands at the 33.3 threshold or 2.5 points lower versus the previous month.

This month's special question dealt with the assessment regarding the economic prospects and various economic and financial market parameters in Switzerland. A majority of the participants regard an interest rate level between 2.5 and 3.0 percent as neutral, while a majority of the survey participants believes that potential growth of the Swiss economy has increased in the last ten years. 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.

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