SNB Minutes: Swiss economic outlook becomes uncertain due to Middle East war

Medium-term inflationary pressure is virtually unchanged compared with the last monetary policy assessment.

Despite the escalation in the middle east, the scenario for global economic developments has not changed fundamentally.

With outbreak of war in Middle East, Swiss economic outlook for coming quarters has become more uncertain.

The economic outlook for Switzerland improved slightly in the first months of the year.

Growth could be rather subdued in the short term, before recovering again in the medium term.

While the economic outlook for Switzerland in the coming months is uncertain and growth could be rather subdued in the shorter term, in the medium term the growth outlook is expected to improve.

Swiss GDP growth of around 1% is expected for 2026 and around 1.5% for 2027.

Although the output gap is currently negative due to the decline in GDP in the third quarter, it is expected to close in the coming quarters.

Unemployment has stabilised and should decline somewhat in the coming quarters.

Swiss inflation is likely to increase in the short term due to higher energy prices, but remain within range consistent with price stability.

The governing board noted that, owing to the appreciation of the Swiss Franc, monetary conditions are tighter than at the time of the monetary policy assessment in December.

In medium term, Swiss inflation is likely to decline again.

However, in light of the outlooks presented with regard to inflation and the economy, they remain appropriate.

It also concluded that monetary policy can currently still be considered expansionary as evident, among other things, in the growth in credit and in the broad monetary aggregates.

Main risk to the economic and inflation outlook for Switzerland stems from developments in the global economy.

War in the middle east could curb economic activity more strongly and increase upward pressure on the Swiss Franc.

In view of geopolitical situation and the associated flight to safe havens, however, the SNB’s willingness to intervene in the foreign exchange market should remain high in order to counter a rapid and excessive appreciation of the Franc.

SNB considered how the effects of war in the Middle East were factored into the current forecasts and analyses.

Only a slight downturn in sentiment is evident so far.

SNB addressed question why Switzerland is less affected by high energy prices than other countries.

Reason for this is that energy is of lower significance for consumption.

Switzerland’s manufacturing industry is also less dependent on energy prices.

Governing board discussed the conditional inflation forecast, which assumes that the SNB policy rate remains unchanged at 0%

Forecast is within the range of price stability over the entire forecast horizon.

In the short term, it is higher than the December forecast due to the rise in energy prices.

In medium term, appreciation of the Swiss Franc reduces inflationary pressure, countering possible second-round effects of the rise in energy prices.

Inflation forecast over the medium term is therefore very close to that of the previous quarter.