ZEW-CS Financial Market Test Switzerland - Economic expectations almost unchanged, whereas the assessment of the current situation reaches new high

In the survey carried out by the Centre for European Economic Research (ZEW) in cooperation with Credit Suisse, the financial market experts surveyed the current situation of the Swiss economy as even more favourable than in the previous month. Regarding the economic outlook, the survey participants' view remained almost unchanged. The ZEW Credit Suisse indicator fell from a neutral level to -0.1 points.

Inflation and interest rate expectations increased in the June survey. Furthermore, the number of survey participants that anticipate a medium-term appreciation of the Swiss franc versus the Euro increased by 4.4 percent to 54.4 percent. The answers to this month's special question show that a clear majority expects the level of capacity utilization to be above its 10-year average. 41 percent of the participants also forecast the growth of the money supply (M3) to be above average in 2007 and 2008.

The results of this month's ZEW Credit Suisse survey regarding the current economic situation in Switzerland reveal that positive assessments predominate. The balance of the corresponding indicator improved by 6.4 points to the 95.7 mark. On the other hand, expectations for the future economic trend are stagnating. 78.3 percent of the experts foresee no change in the economic outlook, while roughly 11 percent of the respondents tend to forecast either an improvement or a deterioration of the picture. Consequently, the relevant indicator edged down slightly by 0.1 point to just below the neutral threshold. These assessments reflect the prevailing robust economic growth in Switzerland and the persistently upbeat consumer sentiment.

However, climbing energy prices, as well as the prospects of further advancing interest rates, are dampening expectations for the future economic trend. The majority of survey participants (60.8 percent) anticipate a stronger spurt in inflation rates. Hence, these experts share the view conveyed by the Swiss National Bank (SNB), which justified its latest interest-rate hike on 14 June on the basis of worsening inflation expectations. In contrast, 37 percent of the respondents see no signs pointing to a changing price level. The corresponding inflation indicator thus increased by 14 points to the 58.6 mark. Roughly 93.5 percent of the experts believe that short-term interest rates will continue to advance, while merely 6.5 percent of the analysts expect no change in rates. Still none of the participants anticipate declining interest rates. This assessment led to an increase in the relevant indicator by 6 points to the 93.5 level. About 84.8 percent of the respondents see no change in the interest-rate differential versus the Eurozone in the future, while 13 percent expect the differential to narrow. So the balance of the corresponding indicator dropped by 7.3 points to the current level of minus 10.8 points. Regarding long-term interest rates, the lion's share of the analysts (82.6 percent) also foresees advancing rates. Only 15.2 percent of the participants see no change in long-term rates. The relevant indicator thus improved by 2.2 points to reach the 80.4 line.

Given the steady stream of favourable data on exports and economic growth, the majority (60 percent, up 7.2 percentage points versus the previous month) of survey participants expects the Swiss Market Index (SMI) to gain further terrain from the current high level, thereby continuing to follow its upward trend. Somewhat more than 26.7 percent of the respondents see the SMI in a holding pattern, while 13.3 percent forecast a drop in share prices. As a result, the balance of the indicator rose versus the previous month by 8.4 points and now stands at 46.7. In the assessment of the Swiss franc/Euro exchange rate, 60.9 percent of the experts expect the Swiss currency to pick up ground on the heels of hitting a record low in mid-June. Around 32.6 percent predict no change in the exchange rate, up 7.6 percentage points month-on-month. Just 6.5 percent foresee a trend toward further depreciation of the Swiss franc. So the corresponding indicator increased by 4.4 to reach 54.4 points. Against the backdrop of the renewed spike in oil prices recorded last month, 60.9 percent of the analysts (up 13.6 percentage points over the previous month) now believe that the uptrend in oil prices will continue. On the other hand, 26.1 percent of the experts anticipate no change and 13 percent a decline in the oil price. Consequently, the relevant indicator improved by 11.5 points to the 47.9 level.

This month's special question dealt with the assessment regarding the future level of capacity utilization, the growth of the money supply (M3) and credit growth. The participants were also asked how large they consider the impact of capacity utilization and M3 growth on inflation. Regarding credit growth, 42 percent of the survey participants expect a growth rate between 3 percent and 4.5 percent. 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 

Fabian Heller (Credit Suisse), Phone: +41/44/3329061, E-mail: fabian.heller@credit-suisse.com