However, we expect modest growth for the remainder of the year. Subdued demand from abroad, the loss of purchasing power due to inflation, and more restrictive financial conditions are having a dampening effect. Overall, GDP is likely to grow by around 1% this year. In this environment, unemployment will probably rise slightly, and the utilisation of production capacity is likely to decline somewhat. The forecast for Switzerland, as for the global economy, is subject to high uncertainty. The main risk is a more pronounced economic slowdown abroad. Monetary policy outlook  Ladies and gentlemen, allow me to return to our monetary policy. The marked decline in inflation in recent months is very welcome. This is also the result of our monetary policy, which is now significantly more restrictive than one year ago. The SNB policy rate is 2.5 percentage points higher than before the monetary policy assessment in June 2022, and we have also sold foreign currency in recent quarters. Our monetary policy tightening has strengthened the Swiss franc and thus dampened imported inflation. In addition, our monetary policy is also directly countering domestic inflation. Nevertheless, the underlying inflationary pressure has risen further. In the current environment, increased costs can still be easily passed through to prices. We are therefore observing persisting second-round effects in many domestic goods and services. A rise in rents will also contribute to higher domestic inflation. There is thus still the danger of inflation becoming entrenched above 2%, i.e. above the range that we equate with price stability.
Banks’ sight deposits held at the SNB will be remunerated at the SNB policy rate of 1.75% up to a certain threshold. Sight deposits above this threshold will be remunerated at an interest rate of 1.25%, and thus still at a discount of 0.5 percentage points relative to the SNB policy rate. Inflation forecast  I would like to address the development of inflation. Inflation has declined significantly in recent months, and stood at 2.2% in May. This decrease was above all attributable to lower inflation on imported goods, in particular lower prices for oil products and natural gas. Our new conditional inflation forecast is based on the assumption that the SNB policy rate is 1.75% over the entire forecast horizon (cf. chart 1). Through to the end of 2023, the new forecast is below that of March. The lower oil and gas prices and the stronger Swiss franc are having a dampening effect over the short term. From 2024 onwards, the new forecast is higher than in March, despite today’s increase in the SNB policy rate. The reasons for this are ongoing second-round effects, higher electricity prices and rents, and more persistent inflationary pressure from abroad. The new forecast puts average annual inflation at 2.2% for 2023 and 2024, and 2.1% for 2025 (cf. table). In the forecast period, inflation is likely to be increasingly driven by higher prices of domestic goods and services. Without today’s policy rate increase, the inflation forecast would be even higher over the medium term.