The May edition of the Financial Market Test Switzerland once again reveals that economic expectations are brightening up in Switzerland, with 21.6% of the analysts surveyed forecasting an improvement in the overall economic outlook on a six-month horizon. Merely around one-fourth (25.5%) of all the experts still regard deterioration of the Swiss economy as the most likely scenario. However, most (52.9%) of the survey participants predict that the economic environment will remain unchanged in the coming half-year. Consequently, the Credit Suisse ZEW indicator for economic expectations surged considerably by 23.8 points and is now hovering at the -3.9 mark. On the other hand, the experts' assessment of the current economic situation paints a renewed negative picture. The overriding majority (68.6%) of the respondents assess the prevailing economic climate as "bad," while not a single analyst views the economy as "good." The relevant balance edged down by 2.6 points to reach the -68.6 threshold.

Expectations on the part of the financial market experts regarding inflation showed a relatively significant improvement (up 35.6 points) in May from low levels, although the corresponding balance continues to waver in negative territory at -7.9. The forecasts for short-term interest rates edged up slightly in the May survey, with the share of financial specialists who assume an increase in interest rates is in the cards in the coming six months growing by 7.2 percentage points to 15.7%. Only a marginal 3.9% of survey participants predict that short-term interest rates will decline. In contrast, the overwhelming majority (80.4%) of respondents expect interest rate levels to hold steady in the next half-year. The relevant balance climbed by 13.9 points and now stands at the 11.8 mark. An increasingly large proportion (64%) of the analysts surveyed see no further change in the interest rate differential between Switzerland and the Eurozone.
In the wake of hitting its multi-year low point in March, the Swiss Market Index (SMI) has recorded a slight - albeit steady - advance. However, in the current survey conducted in conjunction with the Financial Market Test Switzerland, the respondents conveyed mixed feelings regarding the future stock market trend. Hence, just 44.9% of the financial experts still anticipate that the Swiss benchmark index will continue to gain terrain - down 17.3 percentage points compared wit the previous month's survey. Roughly one-third (32.7%) of the participants foresee no change in the SMI in a six-month timeframe, while 22.4% of the analysts expect share prices to lose ground. The corresponding balance dropped by 19.7 points and is currently residing at the 22.5 level.

After crude-oil prices climbed to their interim year-to-date peak at the outset of May, approximately 52% of the experts are now looking for further rising prices. Merely 6% of the survey participants reckon with declining crude-oil prices in the medium term. The relevant indicator is hovering at the 46 level at present. Regarding estimates for the price of gold, the analysts expressed noticeably mixed opinions in last month's survey. However, the May results sketch a more vivid picture. Accordingly, 39.6% of the respondents expect the price of the precious metal to increase, while only 14.6% (down 15.8 percentage points) view decreasing gold prices as the most probable scenario. The corresponding balance gained 20.6 points to reach the current level of 25.

Brightening economic expectations also had an impact on the assessments conveyed by the analysts this month regarding the earnings and profit margins of Swiss companies. Just 56% (down 22.3 percentage points) of the experts therefore anticipate that the corporate earnings situation will deteriorate on a six-month horizon. The share of respondents who predict that company profit margins will narrow also shrank to 61.2% (down 14.4 percentage points), with the relevant balance rising by 15.7 points to the -51 mark this month. The Swiss financial specialists expressed a fairly unanimous view with respect to the trend in the unemployment rate: 98% of all the survey participants thus expect the jobless rate to increase in the coming half-year. The corresponding balance now stands at 96 (up 2.4 points).

Within the scope of this month's "special question," participants in the Financial Market Test Switzerland were asked to convey their assessments regarding the effectiveness of monetary and fiscal policies amid the prevailing economic environment. The responses show that the analysts view the strategy of "quantitative easing" as a good instrument for stimulating lending activity. However, 78% of the respondents foresee a risk that the monetary-policy measures could result in rising inflation rates.

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.

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