This is in line with surveys on inflation expectations. Although survey respondents now anticipate that inflation will be significantly lower, their expectations remain in positive territory for the medium term. With the new exchange rate situation, conditions for the Swiss economy have become more difficult. In the past, entrepreneurs and employees have always found ways to deal with a strong Swiss franc, thereby demonstrating, time and again, their great flexibility. Nevertheless, every appreciation represents a fresh challenge with an uncertain outcome. Therefore we have great respect for the difficult tasks which the economy now faces. In this regard, I would like to say a few words about the economic situation in Switzerland. In the fourth quarter, the Swiss economy again grew faster than expected. On the output side, growth was relatively broad-based, with manufacturing being the main driver. Value added also rose significantly in the banking industry and the public sector. On the demand side, both consumption and equipment investment recorded favourable developments. By contrast, exports of goods and services stagnated. In December, the SNB expected annual growth of some 2% for 2015. With the appreciation of the Swiss franc since mid-January, this forecast has had to be revised. A noticeable weakening in the economy may be expected, particularly in the first half of the year. For the year as a whole, the SNB now only expects real GDP to increase by just under 1%. Given this weakening, appreciable underutilisation of production capacity may be expected in the short term. Unemployment is likely to increase moderately.
I think it merits serious consideration for more widespread adoption, irrespective of the accounting and tax treatment such reserves might attract. One key feature of such reserves is that they should be useable. That is, the markets and analysts need to accept that using such reserves to absorb write-offs when losses are high is the natural counterpart of building them up when losses are cyclically low. It is not a sign of  BIS Review 145/2008  5  weakness or of inadequate capitalisation, but of prudent management of the cyclical pattern of losses. From the point of view of market acceptability, separating cyclical reserves from more structural capital requirements seems a valuable idea. The second scheme I want to promote is growth-related capital requirements. Losses tend to be lower in the early stages of a loan’s life than when it is fully seasoned because borrowers are more certain of their own and the economy’s near-term prospects. A loan book which is growing more rapidly than average will be weighted towards such unseasoned loans, and so will appear to be performing better than a balanced portfolio of loans of different vintages. In addition, rapid growth of lending tends itself to be associated with taking on poor business – even if that is not obvious at the time it is written. Typically, rapid growth can only be achieved by drawing in marginal borrowers to the market. That is true of the banking sector as a whole.