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Economic survey by Credit Suisse in cooperation with the Centre for European Economic Research (ZEW)

Expectations diminish in January

Economic expectations turned out to be somewhat more moderate again in January, with the relevant Credit Suisse ZEW Indicator edging down by 5.9 points to the -18.4 mark. In contrast, the indicator for the assessment of the current economic picture continued to follow its upward trend, climbing by 8.6 points to a high plateau of 71.1. Inflation expectations also increased noticeably in January and, in the interim, 42.1% (up 9.6 percentage points) of the respondents forecast a pick-up in inflation rates on a six-month horizon. Overall, the balance of inflation expectations surged by 22 points to the 39.5 threshold. Expectations regarding the short-term interest rate environment have advanced again in the wake of retreating slightly the previous month. The corresponding indicator jumped from 23.1 points to the 35.1 level.

Economic expectations for Switzerland declined somewhat again in the first month of the year. Hence, the relevant Credit Suisse ZEW Indicator edged down by 5.9 points to the -18.4 mark in January. A total of 23.7% (+6.2 percentage points) of the financial market experts surveyed anticipate that economic momentum will deteriorate ahead. In contrast, 5.3% (+0.3 percentage points) of the analysts expect an improvement on a six-month horizon. The lion’s share of respondents (71.0%) continue to forecast an unchanged economic climate. However, the resulting overall decline should also be viewed against the backdrop of a very upbeat assessment of the current economic picture, which makes any improvement to even higher levels increasingly difficult.

In January, 71.1% (+8.6 percentage points) of the survey participants view the economic situation in a “good” light, while merely 28.9% regard the economy as being in a “normal” state of health. None of the respondents describes the economic climate as “bad.” Consequently, the corresponding balance for the assessment of the present economic environment ascended to the 71.1 level – the highest plateau since February 2008.

Expectations regarding the future trend in inflation continued to climb in January. The share of financial specialists who predict that inflation rates will increase in the next six months grew by 9.6 percentage points to 42.1%. In contrast, only 2.6% (-12.4 percentage points) of the experts surveyed believe that inflation will drop even further than the current extraordinarily low levels. Overall, the pertinent balance of inflation expectations surged by a noticeable 22 points to the 39.5 threshold.

Although the overwhelming proportion of respondents (64.9%) still foresee a persistently low interest rate environment in the coming half-year, this share shrank by a relatively noticeable 12 percentage points. 35.1% (+12 percentage points) of the analysts forecast a pick-up in short-term rates. In the interim, 68.4% (+9.4 percentage points) of the experts think that long-term interest rates will rise from their prevailing still very moderate levels in a six-month timeframe.

The balance of expectations for the trend on the Swiss stock market revealed little change in January, with the relevant indicator edging up just marginally by 1.1 points to the 73.6 mark. The overriding majority of respondents (78.9%) therefore continue to assume that the Swiss Market Index (SMI) will gain terrain in the coming half-year. On the other hand, 15.5% (+8.3 percentage points) of the analysts presume that the SMI will follow a sideways trend and 5.3% (-4.7 percentage points) see share prices losing ground.

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.