BASEL: The Swiss economy is likely to recover further in the coming quarters, according to the Swiss National Bank’s (SNB’s) latest quarterly bulletin. Economic indicators are showing positive signals for the short term. Nonetheless, the SNB has confirmed its monetary course outlined at its monetary policy assessment in mid-September.
The central bank decided to leave the target range for the three-month Libor unchanged at between –1.25% and –0.25%. It also left unchanged, at –0.75%, the interest rate on sight deposits held by banks and other financial market participants at the SNB which exceed a given threshold.
SMB reports that in mid-December, yields on Confederation bonds across the full maturity spectrum were higher than at the mid-September monetary policy assessment. As long-term yields have risen more strongly than short-term yields, the yield curve was somewhat steeper in mid-December than it had been in mid-September.
Yields on Confederation bonds with maturities of more than ten years had moved above zero, whereas three to six months ago, the full maturity spectrum had been trading in negative territory. Long-term real interest rates still close to zero. The estimated long-term real interest rate was just below 0.1% in mid-December; in other words, it remained close to zero. The real interest rate estimate is based on the development of the ten-year yield on Confederation bonds and inflation expectations for the same time horizon, estimated using a vector autoregressive (VAR) model. It also reports that higher sight deposits at the SNB Since the monetary policy assessment of September 2016, total sight deposits held at the SNB have continued to increase.
By the start of the second week in December they amounted to CHF527.4bn, up by CHF11.6bn compared to the last calendar week preceding the mid-September assessment (CHF515.8bn).
Between the assessments in mid-September and mid-December 2016, they averaged CHF521.3bn. Of this, CHF453.2bn was accounted for by the sight deposits of domestic banks and the remaining CHF68.1bn by other sight deposits. Overall, banks exceeded the minimum reserve requirement by some CHF 437.8 billion on average (previous period: CHF 419.2bn). Banks’ surplus reserves have thus increased further.
SNB reports that the purchasing managers’ index (PMI) and the KOF barometer are at above-average levels, which indicates a solid economic growth scenario. Discussions with representatives of Swiss companies conducted by the SNB’s delegates for regional economic relations also suggest positive economic momentum. “Nonetheless, GDP growth is likely to be weaker in the fourth quarter of 2016 than in the first half of the year, mainly due to the weak development of goods exports in October. For 2016, the SNB is continuing to forecast GDP growth of around 1.5%. In the medium term, the global recovery is expected to translate into ongoing positive demand for Swiss goods and services. Moreover, the dampening effect of past Swiss franc appreciation on export growth looks as if it might gradually have run its course,” says the central bank in the bulletin.
On a real trade-weighted basis, the Swiss franc has been stable since the beginning of the year. New orders in the mechanical and electrical engineering industries (MEM industries) and, per the SFSO, existing orders in the manufacturing sector have recently risen again. “Greater sales volumes are likely to improve capacity utilisation, which in turn will boost companies’ margins. Equipment investment is therefore likely to pick up somewhat next year, with the labour market also profiting from the recovery,” says the central bank. Overall, as for 2016, the SNB expects GDP growth for 2017 to be roughly 1.5%.
