Extract from Monetary policy assessment of 17 March 2011
Global economic developments, especially in the US and Asia, have been somewhat more dynamic than the SNB had expected in December. Despite the continued strength of the Swiss franc, the Swiss economy also grew more vigorously in the fourth quarter of 2010 than anticipated. Positive business expectations suggest favourable developments in the economy in the coming months, even though stagnating goods exports indicate that growth will slow during the course of the year. For 2011, the SNB expects Swiss GDP to advance by approximately 2%.
With the strengthening of the global economic recovery, the prospects for Switzerland’s economy have improved since the last quarter. However, continuing debt problems in Europe and the possible dampening effects of high oil prices on economic activity pose considerable downside risks. In addition, the consequences of the earthquake catastrophe in Japan are, at this stage, difficult to assess. At the same time, geopolitical tensions and rising commodity and food prices lead to upside risks to inflation across the globe. Survey data show however that inflation expectations in Switzerland remain stable.
The SNB’s conditional inflation forecast shows slightly higher inflation for 2011. This is due to higher oil prices, more dynamic domestic growth and the more positive assumptions for the global economy. From mid-2012 onwards, the impact of the recent Swiss franc appreciation has a moderating influence on the forecast. After this point, the new conditional inflation forecast is therefore identical with the December forecast. Assuming an unchanged three-month Libor of 0.25% during the forecast horizon, average inflation is expected to amount to 0.8% for 2011, to 1.1% for 2012 and to 2.0% for 2013. The conditional inflation forecast shows that there is no threat to price stability in the short term. However, the rising path in 2012 and 2013 shows that the current expansionary monetary policy cannot be maintained over the entire forecast horizon without compromising price stability in the longer term. The conditional inflation forecast is associated with a very high level of uncertainty.