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

Pessimism still prevails

According to the latest Credit Suisse ZEW Indicator, economic expectations for Switzerland have diminished significantly. The indicator plunged by 12.5 points to the -71.4-point mark in August. The indicator for the assessment of the current economic situation also recorded a sharp drop, falling by 18.6 points to the 34.3-point threshold. The respective balances for inflation as well as interest rate expectations also registered much lower readings in August. The indicator for the inflation outlook decreased by 22.8 points, with merely 14.3% of the financial market experts surveyed predicting that inflation rates will advance in the coming six months. The balance for expectations regarding the short-term interest rate environment lost ground by 29.6 points to the -11.4-point level. At the same time, however, a greater share (64.7%, up 8.8 percentage points) of analysts in this month’s survey anticipate that the Swiss franc will lose terrain versus the euro in the coming half-year.

The Credit Suisse ZEW Indicator of economic expectations recorded a renewed retreat in August, falling by a noticeable 12.5 points and reaching the extraordinarily low level of -71.4. Merely a modest minority of 5.7% of the financial market experts surveyed predict that economic momentum in Switzerland will pick up steam in the coming six months. In contrast, the overriding majority of 77.1% of respondents (+15.3 percentage points) now expect the economic outlook to deteriorate, while 17.2% (-18.1 percentage points) anticipate a stable trend at the current levels.

Dampening of the assessment of the current economic picture that emerged last month continued to loom in August, too. The relevant balance dropped anew by a slightly higher extent (by 18.6 points), with only 37.1% of the analysts viewing the present state of the economy in a “good” light. A share of 60.0% (+12.9 percentage points) of participants regard the prevailing economic environment as “normal.” Nevertheless, the assessment of today’s economic situation in Switzerland still turned out to be in positive territory, in contrast to all the other countries that reported, in some cases, noticeably negative evaluations of their respective economies.

The inflation outlook also decreased significantly once again this month. The proportion of experts who presume that inflation will increase on a six-month horizon now amounts to just 14.3% (previous month: 23.5%). On the other hand, 37.1% of survey participants (+13.6 percentage points) assume that inflation rates will move downward in the next half-year. Roughly less than half (48.6%) believe that consumer prices will continue to hold steady at the current low levels.

The indicator of the prospects for short-term interest rates plummeted by a noticeable 29.6 points in August, dipping into the negative zone at -11.4. The share of respondents who see interest rates rising in the coming six months declined to the zero threshold. However, 11.4% (+2.3 percentage points) of the experts foresee an environment marked by decreasing short-term rates in the same time frame.
In the wake of the fallback of 31.1 points recorded the previous month, the balance of expectations for the performance of the Swiss stock market has now rebounded, climbing by 7.1 points. The assessments over recent months have therefore fluctuated considerably, although the respondents forecast an upbeat trend for the Swiss Market Index (SMI) overall.

The financial analysts surveyed foresee a weaker trend in the value of the Swiss franc from the current overvaluation versus most other major currencies. In particular, the relevant indicator for the CHF/EUR exchange rate plunged by 29.4 points to the -50.0-point mark in August.

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.