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

Expectations brighten up again

Economic expectations brightened up considerably in April. The relevant Credit Suisse ZEW Indicator surged by 22.3 points to the 8.8 threshold, moving into positive territory again for the first time since August 2010. The indicator for the assessment of the current economic situation diminished somewhat at a high level, dipping to the 61.8 mark (-5.8 points). Expectations regarding inflation and interest rates increased anew in April. The indicator for the inflation outlook climbed by 8.7 points, and in the interim 76.5% of the financial market experts surveyed forecast an advancing inflation rate on a six-month horizon. The balance of expectations for the short-term interest rate environment picked up practically the same number of points (+8.9), moving up to the 79.4 level. A somewhat larger share of survey participants (17.6%) in April predict that the Swiss franc will gain terrain against the euro in the coming half-year. However, roughly one-third of the respondents still expect to see a lower valuation of the Swiss currency.

Forecasts for Switzerland’s economy look considerably more upbeat in April. In fact, the relevant Credit Suisse ZEW Indicator improved by 22.3 points to the 8.8 mark. Hence, the indicator of economic expectations has now moved into positive territory again for the first time since August 2010. The share of financial market experts who predict that economic momentum will pick up steam in the next half-year relative to the prevailing picture grew by roughly 10 percentage points to 20.6%. In April, only 11.8% of the survey participants (-12.5 percentage points) expect the dynamics of the Swiss economy to weaken.

In contrast, the assessment of the present state of the economy edged down slightly in April versus the previous month‘s level. Consequently, the corresponding balance of indicators for the current economic situation declined by 5.8 points, but continues to hover at a high plateau of 61.8 points. As in March, there is no one among the analysts who sees today’s economic environment in a “bad” light, while 38.2% regard the situation as “normal,” and the lion's share of 61.8% thinks the economy is in “good” health.

Expectations regarding the future trend of inflation increased further in this month’s survey. In the wake of the sharp surge in March, the proportion of respondents who presume that inflation will advance in the coming six months rose by 11.6 percentage points to 76.5%. Just 20.6% (-14.5 percentage points) of the participants assume inflation rates will stagnate. On the other hand, only a modest minority of experts believe that inflation will likely retreat from the current still very moderate levels.

The trend in expectations for interest rates continues to climb, too. The share of financial analysts who anticipate that rates will rise in the coming six months grew by a further 11.8 percentage points to reach 79.4%, while merely 17.7% (-14.7 percentage points) still believe that the environment for short-term interest rates will remain unchanged in the same timeframe. The balance of the corresponding indicator therefore stands at 76.5 points.The balance of expectations for the performance of the Swiss stock market (SMI) noticeably improved by 24.6 points to the 70.6 threshold in April. The pick-up comes on the heels of a decline by 7 points in March.

Half of the experts surveyed continue to expect the EUR/CHF currency pair to hold steady at current levels on a six-month horizon. Compared with the previous month, a somewhat larger share of respondents (17.6%, up by 4.1 percentage points) foresee a higher valuation for the Swiss franc, while roughly one-third still see the currency losing ground. Overall, the relevant balance edged up by 4.1 points to the -14.8 mark.

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.