Jean-Pierre Roth: Recent economic and financial developments in Switzerland Introductory remarks by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the end-of-year media news conference, Zurich, 14 December 2006. *  *  *  As stated in our press release, the Swiss National Bank is raising its target range for the three-month Libor with immediate effect by 0.25 percentage points to 1.50–2.50%. The SNB intends to hold the rate in the middle of the target range for the time being. Economic activity in Switzerland is very robust. Next year, the economic trend is likely to continue favourable, albeit somewhat less pronounced. This will have a positive effect on the labour market. The National Bank is expecting real GDP to grow by just under 3% in 2006 and by around 2% in 2007. Declining oil prices have pushed back inflation. Average inflation for 2006 is likely to stand at 1.1%. By lifting the target range, the National Bank ensures that the inflation outlook will remain favourable, even in view of the high level of utilisation of economic resources. On the assumption of an unchanged three-month Libor of 2.00%, it expects annual inflation to reach 0.4% in 2007 and 0.9% in 2008. If the economy performs as expected, the SNB will further pursue its strategy of gradual normalisation of its interest rates.
Almost all components of demand continue to grow, albeit at a more moderate pace. Private consumption will benefit from the healthy improvement in disposable income. Equipment investment is being stimulated by the high rate of utilisation of production capacity and the favourable business outlook in many industries. Residential construction is likely to see a measure of calm. Yet increased investment in commercial and industrial building may offset this development to some extent. The somewhat weaker global economic development – though still favourable overall - will probably continue to have a positive impact on exports. For 2007, we expect overall GDP growth of about 2%. Monetary developments Allow me to explain developments in the financial markets and the monetary aggregates. Two topics merit particular attention: the development of credit and money supply and the exchange rate. In addition to long-term interest rates and exchange rates, loans – among other things – play an important role when changes in key interest rates are transmitted to the economy. What information can we derive from the development of lending activity? Loans are registering constant growth. Mortgage loans, which account for the great majority of all bank loans, have grown at a rate of more than 5% since 2003. This is a reflection of the clearly expansionary monetary policy at that time. The growth rate of mortgage loans has gradually slowed, however, and is now slightly below 5%. This is nevertheless still a high growth rate. Other loans, however, are witnessing stronger growth and are currently expanding by 6%.