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

Economic outlook diminishes once again

According to the Credit Suisse ZEW Indicator, economic expectations for Switzerland have diminished considerably again, falling by 12.8 points to the -24.3 mark in June. At the same time, however, the indicator for the assessment of the current economic situation continues to hover at an extraordinarily high level. The corresponding balance edged up by 1.7 points to the 70.3 threshold. Expectations for inflation as well as interest rates recorded significant declines in June. The indicator for the inflation outlook dropped by 15.8 points, with merely 40.5% of the financial market experts surveyed still anticipating that inflation rates will advance on a six-month horizon. The balance of expectations regarding the short-term interest rate environment dipped by 8.4 points to the 48.7 level. The June results reveal that a 40.5% share (-2.4 percentage points) of respondents expect the Swiss franc to lose ground against the euro in the coming half-year. In contrast, the proportion of analysts who believe the Swiss currency will continue to gain terrain increased by 4.1 percentage points to 27%.

The Credit Suisse ZEW Indicator of economic expectations dropped noticeably in June for the second consecutive month, falling from -11.5 to the -24.3 mark – the lowest level recorded since November 2010. The majority (59.5%) of respondents still anticipate that the current favorable economic momentum will continue to prevail in the coming six months as well. However, merely 8.1% (-3.3 percentage points) of the experts foresee further improvement in the economy ahead, in contrast to 32.4% (+9.5 percentage points) of the analysts who in the interim see a cooldown in economic momentum.

At the same time, noteworthy once again is that any expectations for a cooldown in the economy are tempered by the persistently very strong assessment of the current economic situation. Indeed, the relevant balance edged up by 1.7 points in June, with the vast majority (70.3%) of participants viewing the present state of the economy in a “good” light. A share of 29.7% of the respondents regard the economic environment as “normal” while none of the experts describes the current economic picture as “bad.”

As in the previous month, inflation expectations dropped considerably in the June survey. The proportion of respondents who assume that inflation rates will pick up on a six-month horizon decreased by 10.9 percentage points to 40.5%. On the other hand, 46.0% of the participants (+6 percentage points) presume that inflation will hold steady at the current low levels in the coming half-year. And 13.5% (+4.9 percentage points) still regard sinking inflation rates as a probable scenario.

Expectations for short-term interest rates also declined in June for the second month in a row. The share of financial analysts who expect interest rates to advance in the coming six months shrank by 8.6 percentage points to 51.4%. In contrast, 45.9% (+8.8 percentage points) of the experts believe that the short-term interest rate environment will remain unchanged in this timeframe.

In the wake of the decline recorded in May, the balance of expectations for the trend of the Swiss Market Index (SMI) has now rebounded to the 69.4 mark (+14.8 points). The overriding majority (75.0%) of respondents expect share prices to gain terrain in the coming six months, while merely 5.6% (-6.5 percentage points) see the SMI losing ground.

The experts surveyed still anticipate that the Swiss franc will depreciate in value versus the euro and US dollar, although the tendency was somewhat less pronounced in June. The corresponding balances edged up by 6.5 and 12.0 points, but continue to hover in negative territory at the -13.5 and -10.8 levels, respectively.

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.