With the decline in global demand, prices for food, raw materials and oil have fallen sharply. This is the positive flipside of the coin, since this development will boost real incomes and consumption in most countries. Swiss economic outlook The Swiss economy is of course affected by this worsening of the international environment. At our September assessment, we were still projecting a marked slowdown in activity, but with growth remaining positive in 2009. We are now forecasting that GDP growth will be negative, not only during the first two quarters of next year, but also on average for 2009 as a whole. With the probable exception of consumption, all demand components should decline. Exports of equipment goods, demand for which is known to be cyclical, will be affected. In most countries, difficulties in sales and distribution, on the one hand, and restrictions on lending conditions, on the other hand, have prompted a downward revision of investment plans. The US and Europe are cases in point, but a loss of momentum is also being observed in emerging markets. These developments will weigh heavily on our exports of equipment and intermediate goods. The substantial decline in demand for vehicles made by US and European manufacturers will also impact on their Swiss-based suppliers. The metals, machinery and electronics industry was the first to experience a sharp correction in new orders. The worsening outlook for sales will lead to an adjustment of investment plans in Switzerland as well.
All in all, there is, at present, no reason to speak of a credit crunch. However, this favourable situation could soon worsen, as has been observed in other countries. I will now conclude this second section with a few brief remarks on movements in monetary aggregates. Having declined until recently, monetary aggregates are now rising slightly. Following the interest rate cuts, we expect that growth in monetary aggregates will gather pace over the coming months. Given the current heavy demand for liquidity, higher money growth does not, of itself, indicate an increase in inflation risks. Only if money growth were to become excessive over a longer period would this pose a threat to price stability in the medium term. Inflation outlook In addition to the rapid worsening of the global economy and the financial crisis, the third factor behind our policy of successive rate cuts since October is the radical change in the inflation outlook. Inflation risks have largely dissipated since our last quarterly assessment on 18 September, leaving considerable room for manoeuvre in monetary policy, which we have firmly exploited. As you know, last December inflation breached the 2% ceiling above which the SNB considers that the conditions for price stability are no longer met. The rapid rise in inflation – indeed, at the beginning of 2007, we still had zero inflation – was due to the combined effect of a virtually unbroken rise in oil prices and the healthy state of the economy.