ZEW-CS-Financial Market Test Switzerland - ZEW Credit Suisse indicator for the Economic Expectations Continues to Diminish

CH Indicator of Economic Sentiment

The results of the latest ZEW Credit Suisse survey reveal a very positive assessment of the economic situation in Switzerland from the previous month. However, regarding the economic outlook the survey participants tend to paint a somewhat more pessimistic picture. The ZEW Credit Suisse indicator falls to -28 points after it attained -17.3 points in February.

Against the Euro a large proportion of the respondents (42.2 percent) see the franc's fair value in a range of between EUR/CHF 1.55 and 1.57 against the euro, which thus coincides with the Swiss National Bank's (SNB) assessment that the Swiss franc is undervalued. Responding to the question regarding the Swiss franc's influence on inflation 60 percent of the participants opined that a weak franc had a fueling effect on inflation.

An analysis of the latest ZEW Credit Suisse survey confirms the participants' overall positive assessment of the present economic situation in Switzerland. The corresponding indicator edged down just marginally by 0.4 points to the 90 mark. As already seen last month, expectations regarding the future economic picture diminished, with the indicator declining by 10.7 points to -28 points. Precisely 34 percent of the participants, 9 percent more than in the previous survey, believe that the economic situation is rather deteriorating. The lion's share of 60 percent of the respondents - albeit 7.3 percent fewer than last month - expect no significant change, and merely 6 percent anticipate a pick-up in economic momentum on a six-month horizon.

Half of the survey participants conveyed the opinion that the quite modest, nearly non-existent inflation in Switzerland at present (with a 0.0 percent year-on-year change in February) will continue to remain at a low level. Roughly 44 percent (down 0.3 percent versus the previous month) of respondents presume that the inflation rate will rise.

Against the backdrop of the SNB's upcoming monetary policy meeting, 89.8 percent (3.3 percent more than last month) of the experts presume that the SNB will move to hike interest rates again. Just 10.2 percent of the participants surveyed expect no change in short-term rates, while no one said they anticipated an interest rate cut. Regarding long-term interest rates, 71.4 percent of the analysts also forecast an increase. Approximately one-fourth of the respondents (24.5 percent) foresee no change in long-term interest rates.

The Swiss Market Index (SMI) was also unable to evade the effects of the correction on European and US stock markets which resulted from the turbulence prevailing on the Chinese stock exchange in late February. This correction was apparently regarded as a welcome breather from the share price rally of previous months. The majority (55.1 percent) of the analysts predict that the SMI will stage a recovery, while nearly one-fifth of the experts believe the Swiss index will lose ground in the coming six months.

Amid the share-price correction on the SMI at end-February, the Swiss franc underwent a real trend reversal. On the heels of a prolonged period of depreciation spanning months, the Swiss currency climbed to its highest peak so far this year. This is also attributable to the unwinding of carry trades, which had previously contributed to the franc's weakness. Following a certain amount of easing of the situation on the financial markets, the Swiss franc has already given up some territory versus the euro again. Most survey participants (55.1 percent) expect the Swiss franc to regain terrain. Only 8 percent (down 3.5 percent compared with last month) think the currency will probably depreciate, and 34 percent assume the EUR/CHF exchange rate will hold steady.

Following a steep decline through around mid-January, oil prices rose back above the USD 60/barrel threshold in the course of February. Roughly 42.9 percent of the analysts expect no significant change in oil prices, while a slightly higher margin of 46.9 percent forecast rising oil prices.

Within the scope of the March "special question" for the Financial Market Test Switzerland, we asked survey participants to express their opinion regarding the fair value exchange rate for the Swiss franc. Although the US dollar has undergone steady depreciation in recent years, most survey participants (38.6 percent) view a value for the Swiss franc in a range between USD/CHF 1.17 and 1.25 as fair, which roughly corresponds to the current exchange rate level. Responding to the question regarding the Swiss franc's influence on inflation - a point that the SNB has frequently underscored - 60 percent opined that a weak franc had a fueling effect on inflation. Vice versa, around 71.1 percent of the respondents think that a strong Swiss currency leads to a lower inflation rate. Finally, survey participants were requested to convey their assessment with regard to the future Swiss franc exchange rate. Regarding the USD/CHF exchange rate the majority of respondents - 59.1 percent and 31.8 percent - forecast the USD/CHF exchange rate trading in a range between USD/CHF 1.20 and 1.24 on a 3- and 12-month horizon, respectively, which is thus comparable with the current rate. Noteworthy is that merely 9.1 percent of those questioned regard an exchange rate of less than USD/CHF 1.20 in three months as a probable scenario.

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.

The detailed results - including survey participants' assessment of developments in other countries - can be found in this month's edition of the "Switzerland Financial market report".


Gunnar Lang (ZEW), Phone: +49/621/1235-372, E-Mail: lang@zew.de  

Thomas Herrmann (Credit Suisse), Phone: +41/44/333-5062, E-Mail: thomas.herrmann@credit-suisse.com