BERLIN (MNI) – Due to the expected healthy economic growth in
Switzerland this year, deflationary risks have mostly vanished, the
Swiss National Bank reiterated in its latest Quarterly Bulletin released
Friday.
The Bulletin, which is primarily based on data available ahead of
the central bank’s last monetary policy meeting on June 17, brought
little change in the overall policy and economic outlook.
The central bank confirmed its forecast for around 2% GDP growth in
Switzerland this year. “As a result of the positive developments, the
risk of deflation in Switzerland has largely disappeared,” it repeated
in its report.
The SNB at the same time reaffirmed that “uncertainty has
increased.” Recent financial market tensions due to the state of public
finances “of some individual countries” have increased the downside
risks, it said.
“Should these downside risks materialise and, via an appreciation
of the Swiss franc, lead to a renewed threat of deflation, the SNB would
take all the measures necessary to ensure price stability,” the central
bank reiterated.
Swiss GDP growth this year will be likely supported by a
combination of foreign and domestic demand, the central bank reaffirmed.
“Despite the lethargic recovery in many major European countries and the
appreciation of the Swiss franc in the currency markets, net exports
will probably make a positive contribution to growth,” it predicted.
Yet, the SNB noted that the expected 2% GDP increase this year will
not be sufficient to close the overall output gap in Switzerland by the
end of 2010.
“The inflation outlook remains unchanged,” the central bank said in
its Bulletin, again stressing that the three-year inflation forecast
based on an unchanged three-month Libor suggests that the current
expansionary monetary policy “cannot be maintained over the entire
forecast horizon without compromising medium and long-term price
stability.”
The SNB confirmed its recent inflation forecast of nearly 1% in the
second quarter of 2010. “Since the oil price in the first half of 2009
was lower than in 2010, this level is due to a base effect attributable
to oil prices,” it reminded.
Thereafter, the SNB continues to project inflation to remain below
1% until the second quarter of 2011. “On the one hand, the base effect
attributable to oil prices weakens,” it explained. “On the other hand,
production remains below its potential.”
The forecast shows that — should the Libor remain at the level
targeted today — inflation will accelerate from the third quarter of
2011 onwards, the central bank reminded. “At 2.2%, the inflation
forecast for 2012 is the same as in the March forecast,” it remarked,
adding that it is still associated with “very considerable
uncertainties.”
One way of assessing potential inflationary or deflationary risks
resulting from an excessive or insufficient supply of liquidity to the
economy is to calculate the money gap, the SNB noted in its report.
“According to this measure, the money gap closed in the second
quarter of 2009. The zero line may still have been within the range in
the first quarter of 2010, but the general picture is one of monetary
overhang, which could lead to greater inflationary pressure in the
medium term,” it explained.
–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com
[TOPICS: MT$$$$,M$$EC$,M$X$$$,M$$CR$,MGX$$$,M$$FX$]