I have received helpful comments from Andrew Bailey, Sarah Breeden, Hugh Burns, Fabrizio Cadamagnani, Jon Cunliffe, Josh Jones, Andrew Hauser, Dave Ramsden, Martin Seneca, Fergal Shortall, Daniel Walker, and Sam Woods for which I am most grateful. The responsibility for all remaining errors is my own.
On the other hand, given the high level of capacity utilisation and movements in the exchange rate, there is a danger that higher production costs will increasingly be passed on to prices. Should economic momentum remain unchanged or should movements in the Swiss franc result in a further relaxation of monetary conditions, further increases in the interest rate are likely in the months ahead. Economic outlook The international environment has a strong impact on economic developments in Switzerland. According to the IMF forecasts, the global economy is poised to grow at a sustained rate of approximately 5% in 2007. While the economic activity in the United States has been satisfactory, it is a little less dynamic than expected. By contrast, the economic situation in Europe is clearly healthier than we had expected. This encouraging development has had a favourable impact on our economy. Economic activity in Switzerland continued to be dynamic in the first months of the year. In the first quarter, gross domestic product (GDP) was up by 3.2% saar, exceeding the long-term average growth rate by a significant amount. The strong economic performance assisted the recovery of the labour market. Employment was up in industry as well as in the construction and service areas. As a result, unemployment figures dropped further and the unemployment rate fell below the level of 3%. Demand indicators were still trending upwards, which should result in a renewed drop in unemployment in the months ahead.