ab21 February 2024Global Research and Evidence LabEuropean Economic PerspectivesSwitzerland quarterly: All you need to knowA new quarterly publicationWith this edition, we introduce a new quarterly publication on the Swiss macro and policy outlook. It summarises our current views, key charts and data points to watch, and includes a focus article, in which we dive deeper into a topic of current interest. This time, we delve into the tracking of SNB foreign exchange interventions. Macro outlook: Growth, inflation, labour market (p. 3)Manufacturing activity remains depressed amid stagnating Eurozone growth, but the more domestic-oriented services sector partially compensates the weakness. We project real GDP growth of 1.2% in 2024, including international sport events. This should also support the labour market, where we expect only a modest softening in light of still prevalent recruitment shortages (unemployment rate end-2024 UBSe: 2.3%). Inflation has slumped to 1.3% in January and is now running well below the SNB's forecast from December. We expect some acceleration from rent increases in May, but project average inflation in 2024 and 2025 at just 1.4%.What next for the SNB? (p. 4)We expect the SNB to start cutting rates in June, followed by two more cuts in September and December, to a terminal policy rate of 1%. We think the SNB will want to wait to ensure that domestic price pressures stemming from higher rents no longer pose upside risks to inflation (its latest forecast assumes inflation picks up to 2% in Q2). However, with the January inflation downside surprise, the SNB forecast looks too high to us, and the probability of a policy rate cut on 21 March has increased. To cut rates, we believe the end-point of the SNB's inflation forecast would need to decline below 1.5% from currently 1.6%, and the forecast path would have to become downward-sloping. We discuss arguments in favour and against a March rate cut on p.4.Focus article: Tracking SNB FX interventions − a closer look (p. 7)In December, the SNB announced that it no longer focused on FX sales but remained willing to intervene in FX markets, as necessary. The strength of the CHF at the beginning of the year has opened up the question whether the SNB may now move towards purchasing FX again, if needed, and more broadly what the balance will be between FX interventions and policy rate cuts. Tracking SNB intervention activity has thus gained more interest among clients. The focus article describes our current approach to estimating monthly intervention activity, and discusses alternatives with more timely intra-month data.CHF rates strategy (p. 6)We like fading the March SNB pricing by entering into a March vs December 2024 SNB meeting dates flattener. We acknowledge the risks of a March SNB cut, but with the March Fed and the ECB cuts likely off the tab...
