Switzerland’s neighbours saw an upswing in industrial output and exports, although domestic demand in these countries remained - and still remains - sluggish. In Switzerland, too, the long-awaited but oft-delayed upswing finally began to make itself felt. The first signs of the upturn became apparent in the summer. These were initially in isolated areas but then became increasingly widespread. The confidence indicators began rising, and order books swelled. The turnaround was facilitated by a marked weakening of the Swiss franc, which was itself triggered by a renewed easing of our monetary policy in March. This downward correction in the franc, which continued for the rest of the year, came as a welcome respite for Switzerland’s export industry, which had been buffeted by the weak global economy and the fall-off in international trade. The Swiss franc’s slide against the European currency was gradual, extending over almost a year. Our currency’s exchange rate dropped from CHF 1.46 against the euro in March 2003 to CHF 1.55 today, thus depreciating by about 6%. The franc’s fall is even greater in real terms owing to the higher inflation rate which prevailed - and still prevails - in the euro zone. Also in real terms, the Swiss franc is worth less in euros than when the single currency was launched five years ago. This development shows that, as the new European currency has gained in stature, the markets have taken a different view of the safe-haven role traditionally played by the franc.
While consumer spending has held up well in the past two years, it is expected to gain momentum as the economic environment brightens. Consumption will thus continue to support growth, though it will probably cede pride of place to more cyclical components such as capital expenditure and exports. It will benefit, in particular, from the gradual improvement that will be seen on the labour market. At this stage of the economic cycle, of course, we must first expect gains in productivity, which means that unemployment will only decline slowly. Nevertheless, here too, the medium-term outlook is now good. The scenario for a recovery that I have presented is, needless to say, full of imponderables. The risks are everywhere. They may take the shape of an uptrend or a downtrend. We can thus not rule out the possibility that the international economy will show more robust growth than anticipated. A swift build-up of inventories, for example, would appreciably accelerate the cycle. But the downside risks could also be triggered at any time by new political disorders. Given the significant internal and external imbalances throughout the world, such unrest could fuel greater volatility on the currency and equity markets. The strength of the recovery is also uncertain. In the United States, the economic recovery, which has been driven largely by tax breaks, is not yet firmly in place; households, labouring under a heavy debt burden, may be frightened by the slow pace of job growth.