Monthly interview Klaus Wellershoff & Patrick Müller

While global economic growth remained at a solid level until the end of last year, thanks to the USA and selected emerging markets such as India, concerns have deepened significantly since the start of this year. This is partly linked to the US economy, where a clear sense of uncertainty has emerged against the backdrop of President Trump’s aggressive trade policies. The mood among American households has noticeably darkened, and their consumption activity has fallen short of expectations since the beginning of the year. At the same time, economic data from Europe and China have also disappointed. In Europe, the hoped-for positive sentiment effects tied to massive fiscal stimulus measures in Germany and across the European Union have so far failed to materialise.

  

Inflation rates are evolving differently around the world. Particularly concerning is the situation in the USA and Great Britain, where inflation rates remain significantly above the target levels set by their central banks, as well as in Japan, where inflationary momentum has recently intensified. In the USA, the situation is compounded by the fact that inflation expectations among the population have surged dramatically amid the trade war instigated by President Trump. US households currently anticipate an inflation rate of 5 percent within a year.

The outlook is somewhat more optimistic in the Eurozone, where the core inflation rate fell again in March and now stands at 2.4 percent. Core inflation in Switzerland is even lower, currently at 0.9 percent. Here, there is even a risk that the inflation rate could soon approach the uncomfortable zero-percent mark once more.

  

While the US Federal Reserve (Fed) and the European Central Bank (ECB) continue to gradually reduce their balance sheets, the Swiss National Bank (SNB) is currently taking the opposite approach.

This reflects the challenging position of the SNB: due to the massive balance sheet expansion in recent years, aimed primarily at weakening the Swiss franc against the euro and the US dollar, the SNB now holds substantial foreign currency reserves. If one of these currencies—such as the US dollar, as seen recently—weakens significantly, the SNB incurs considerable balance sheet losses that strain its equity. Although a central bank like the SNB can operate with reduced or even negative equity, this increases the pressure to prevent further appreciation of the franc as much as possible. Against this backdrop, the SNB has not only halted its balance sheet reduction but also significantly lowered key interest rates, despite the Swiss economy showing signs of stabilisation recently.