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Swiss National Bank Quarterly Bulletin December 4/2012 Volume 30 SNB 2 Quarterly Bulletin 4/2012 Contents 4 Monetary policy report 30 Business cycle trends 40 Chronicle of monetary events SNB 3 Quarterly Bulletin 4/2012 Monetary policy report Report for the attention of the Governing Board of the Swiss National Bank for its quarterly assessment of December 2012 This report is based primarily on the data and information available as at 13 December 2012. SNB 4 Quarterly Bulletin 4/2012 Monetary policy report Contents 6 About this report 7 1 Monetary policy decision of 13 December 2012 8 Monetary policy strategy at the SNB 9 2 Global economic environment 9 2.1 International financial and commodity markets 10 2.2 United States 11 2.3 Euro area 12 2.4 Japan 13 2.5 Emerging economies 14 3 Economic developments in Switzerland 14 3.1 Aggregate demand and output 17 3.2 Labour market 18 3.3 Capacity utilisation 19 3.4 Outlook for the real economy 20 4 Prices and inflation expectations 20 4.1 Consumer prices 22 4.2 Producer and import prices 22 4.3 Real estate prices 23 4.4 Inflation expectations 24 5 Monetary developments 24 5.1 Summary of monetary policy since the last assessment 25 5.2 Money and capital market interest rates 26 5.3 Exchange rates 27 5.4 Stock markets 27 5.5 Monetary and credit aggregates SNB 5 Quarterly Bulletin 4/2012 About this report The Swiss National Bank (SNB) has a statutory mandate to pursue a monetary policy serving the interests of the country as a whole. It ensures price stability while taking due account of economic developments. It is a particular concern of the SNB that its monetary policy be understood by a wider public. Moreover, it is obliged by law to inform regularly of its policy and to make its intentions known. This monetary policy report performs both of these tasks. It describes economic and monetary deve lopments in Switzerland and explains the inflation forecast. It shows how the SNB views the economic situation and the implications for monetary policy it draws from this assessment. Sections 2–5 of the present report were drawn up for the Governing Board’s monetary policy assessment of December 2012. Section 1 (‘Monetary policy decision of 13 December 2012’) is an excerpt from the press release published following the assessment. Unless otherwise stated, all rates of change from the previous period are based on seasonally adjusted data and are annualised. SNB 6 Quarterly Bulletin 4/2012 1 Monetary policy decision Essentially, the SNB’s conditional inflation forecast is unchanged from its September forecast. of 13 December 2012 In the short term, price movements will again be The Swiss National Bank (SNB) is leaving the subdued by a somewhat weaker economy in the euro minimum exchange rate of CHF 1.20 per euro area. In addition, the impact which past appreci­ unchanged. The Swiss franc is still high. An appre ci­ ation of the Swiss franc is having on the price level ation of the Swiss franc would compromise price sta­ is rather stronger than had originally been expected. bility and would have serious consequences for the From mid­2013 onwards, the path of the new condi­ Swiss economy. Consequently, the SNB will continue tional inflation forecast is almost identical to that of to enforce the minimum exchange rate with the September. The forecast is based on an unchanged utmost determination. It is prepared to buy foreign three­month Libor of 0.0% over the next three years. currency in unlimited quantities for this purpose. In Given this assumption, the Swiss franc weakens over addition, the SNB is leaving the target range for the the forecast period. Nevertheless, forecast inflation three­month Libor at 0.0–0.25%. If necessary, it remains low for the next few years. For 2012, the stands ready to take further measures at any time. inflation rate will amount to –0.7%. For 2013, the SNB expects inflation of –0.1% and for 2014, 0.4%. In the foreseeable future, therefore, there is no risk of inflation in Switzerland. Chart 1.1 Conditional inflation forecast of September 2012 and of December 2012 Percentage change in national consumer price index from previous year Inflation Forecast September 2012 (with Libor at 0.00%) Forecast December 2012 (with Libor at 0.00%) % 1.5 1 0.5 0 –0.5 –1 2009 2010 2011 2012 2013 2014 2015 Source: SNB SNB 7 Quarterly Bulletin 4/2012 Observed inflationinDecember 2012 Table1.1 2009 2010 2011 2012 2009 2010 2011 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Inflation0.0 –0.7 –1.0 –0.21.1 1.00.3 0.30.6 0.40.4 –0.5 –0.9 –1.0 –0.5 –0.50.7 0.2 Conditionalinflation forecast of September 2012 with Liborat0.00% andofDecember 2012 with Liborat0.00% 2012 2013 2014 2015 2012 2013 2014 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Forecast September 2012, Libor at 0.00% –0.50.0 0.10.2 0.20.2 0.30.4 0.50.6 0.70.8 –0.60.2 0.4 Forecast December 2012, Libor at 0.00% –0.2 –0.2 –0.20.1 0.20.2 0.30.4 0.60.7 0.80.9 –0.7 –0.10.4 Source:SNB Monetary policy strategy at the SNB The SNB has a statutory mandate to ensure cycle. Second, the SNB summarises its assessment price stability while taking due account of eco­ of the situation and of the need for monetary pol­ nomic developments. icy action in a quarterly inflation forecast. This The SNB has specified the way in which it forecast, which is based on the assumption of a exercises this mandate in a three­part monetary constant short­term interest rate, shows how the policy strategy. First, it regards prices as stable SNB expects the CPI to move over the next three when the national consumer price index (CPI) rises years. Third, the SNB sets its operational goal in by less than 2% per annum. This allows it to take the form of a target range for the three­month account of the fact that the CPI slightly overstates Swiss franc Libor. In addition, a minimum exchange actual inflation. At the same time, it allows infla­ rate against the euro is currently in place. tion to fluctuate somewhat with the economic SNB 8 Quarterly Bulletin 4/2012 2 Global economic calmed the financial and credit markets, there is still substantial uncertainty in connection with the environment management of the debt crisis in the euro area. Global economic growth remained weak in the Impending fiscal policy decisions in the US are also third quarter of 2012. World trade volume even preoccupying markets (fiscal cliff). declined on a quarterly average basis (cf. chart 2.2). The euro area continued to face a mild recession, and Japan’s economic output fell substantially. 2.1 International financial Owing to domestic demand, the US, by contrast, and commodity markets experienced a moderate upturn. Developments in the emerging economies were mixed. In some The situation on the financial markets has not countries, the pace of growth barely accelerated at changed significantly since mid­September and all, while in others – especially China and Brazil – continues to be dominated by risks linked to the growth improved somewhat thanks to supportive European financial and sovereign debt crisis and to economic policy. US fiscal policy. The SNB continues to assume a gradual recov­ The ECB’s new securities purchase programme ery for the global economy as a whole, however it has helped improve financing conditions for busi­ has revised its 2013 expectations downwards nesses in the southern member states of the euro slightly since the last assessment. This revision area. Global equity markets trended sideways (cf. primarily relates to the short­term outlook for the chart 2.3). On the currency markets, the euro and euro area. The SNB is now working on the assump­ US dollar likewise trended sideways on a trade­ tion that the euro area will only emerge from reces­ weighted basis, however the reticence of euro area sion in the course of 2013. In the US, the moderate finance ministers and IMF officials in negotiating recovery is likely to strengthen due, in part at further financial assistance for Greece weighed on least, to the ongoing consolidation of the construc­ the single currency at times (cf. chart 2.4). tion sector. Growth in the emerging economies is Against this backdrop, commodity prices over­ expected to pick up gradually. all dipped slightly below their summer highs (cf. The global economy continues to face consid­ chart 2.5); prices of industrial metals, which are par­ erable downside risks, not least the euro area crisis, ticularly sensitive to economic fluctuations, contin­ which remains a major impediment to growth. ued to fall. Oil prices remained virtually unchanged, Although the new securities purchase programme as the combined effect of geopolitical risks and (Outright Monetary Transactions, OMT) introduced weak global demand ultimately cancelled each other by the European Central Bank (ECB) in September out. Prices of agricultural commodities, which had has reduced the probability of extreme events and soared in prior months due to droughts, stabilised. Chart 2.1 Chart 2.2 Global industrial production Global exports Period average = 100, monthly figures Period average = 100, monthly figures World Advanced economies Emerging economies World Advanced economies Emerging economies Index Index 120 120 115 115 110 110 105 105 100 100 95 95 90 90 85 85 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 Sources: Netherlands Bureau for Economic Policy Analysis (CPB), Sources: CPB, Thomson Financial Datastream Thomson Financial Datastream SNB 9 Quarterly Bulletin 4/2012 Chart 2.3 The SNB’s forecasts are based on assumptions Stock markets about the oil price and the EUR/USD exchange rate; Beginning of period = 100 (lhs), daily figures over the forecast period it is assuming an oil price Developed markets (MSCI) Emerging markets for Brent crude of USD 112 per barrel and an Implied volatility (VIX) (rhs) exchange rate of USD 1.30 to the euro.

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