Swiss economic outlook What does the economic outlook for Switzerland look like, given a baseline scenario with a world economy on a weak growth path as described above? After two years of fairly robust recovery, we expect the Swiss economy to slow considerably in 2012. The situation remains very challenging for Switzerland. On the one hand, the still very strong Swiss franc is weighing on export performance. Firms are suffering from compressed margins. If the difficult exchange rate situation persists, companies may consider relocating production capacity to other regions. On the other hand, the slowdown in external demand, as expected in our global baseline scenario, will likely weigh on investment spending and labor demand in the quarters to come. Although some recently released indicators point to a slight stabilization, we project the Swiss economy to grow only weakly over the next few quarters. Moreover, as mentioned before, there is a very high degree of uncertainty regarding the global outlook. This is also true for the Swiss economy, which depends particularly on economic conditions in the euro area. If the risk scenario of a further escalation of the debt crisis were to materialize, economic activity in Switzerland would suffer a much more pronounced slowdown than just described. Such a development would lead to a severe risk of deflation. Current Swiss monetary policy Given this highly uncertain outlook, the SNB is – more than ever – committed to enforcing the minimum exchange rate with the utmost determination at any time.
However, we expect growth rates in China and India – the most important countries in emerging Asia in economic terms – to remain below potential in the near term, due to prior monetary policy tightening, high inflation, and sluggish external demand. Looking at the US, recent data suggest that the situation has improved slightly. However, this should not hide the fact that economic growth in the US is likely to remain sluggish. As you may know, unemployment is still high and the fiscal environment remains contractionary. For the euro area – Switzerland’s most important trading partner by far – the economic outlook has deteriorated since last autumn. Uncertainty  BIS central bankers’ speeches  1  about an escalation of the sovereign debt crisis is undiminished. As a result, the euro area is likely to face a mild recession in early 2012. This short overview shows quite plainly: we still live in a world with substantial downside risks. Thus, the global economic situation might turn out to be worse than described above. One possible risk is a more pronounced slowdown in emerging market growth. This would reinforce the downturn in European countries. Another risk is that fiscal consolidation in the US may exert a greater drag on growth than projected today. But the main risk is – without doubt – a further escalation of the European debt crisis. Were such a risk to materialize, the consequences for the international financial and banking system – and in turn for global activity – would be severe.