After a robust fourth quarter in 2015, the pace of growth slowed in the first quarter of 2016. According to the first official estimate, annualised real GDP increased by 0.4% in the first quarter. However, this deceleration is not a sign of a more fundamental slowdown. If we disregard short-term volatility, an upward trend is discernible. Available indicators thus point to a continuation of the moderate but steady recovery that has prevailed since the beginning of the year. This would suggest that growth is likely to gather pace in the second quarter. The gradual improvement in the international environment will also benefit Switzerland. Exports are likely to continue to recover. Until now, the positive development was largely driven by pharmaceutical exports. As global economic activity gradually picks up, other industries too are likely to show signs of recovery. Exports of machinery, precision instruments and metal goods have rallied slightly since the beginning of the year. Utilisation of production capacity in manufacturing should continue to improve. This is likely to stimulate corporate investment and have a positive impact on the labour market. Various industry surveys confirm these emerging signals. The employment outlook has brightened somewhat recently. We expect the unemployment rate to stabilise in the second half of the year. We still anticipate real GDP growth for 2016 as a whole of between 1% and 1.5%. The continuation of this moderate recovery and the impact of efficiency measures already taken will help industry to improve margins. However, many challenges remain.

Not all industries and companies will benefit equally from the upturn in demand. Furthermore, our companies are faced with technological, institutional and market-led changes, irrespective of the economic situation. Examples include the digitalisation of the economy, structural adjustments to domestic trade due to new consumer habits and distribution channels, new business models in the financial sector and shifting tourism flows. To overcome these challenges, companies must continue to position their products successfully through innovation and new business ideas. This capacity has proved to be a key strength of the Swiss economy in recent years. Equally, Switzerland must continue to do everything it can to offer conditions which allow companies to compete globally. 2  BIS central bankers’ speeches  Inflation expectations, interest rates and exchange rates I will now review changes in inflation expectations and monetary conditions since the beginning of the year. Due to the appreciation of the Swiss franc and the decline in commodity prices, Swiss inflation once again moved well into negative territory at the beginning of 2015. Despite persistently low inflation rates, medium and long-term inflation expectations have nevertheless remained stable. According to the Consensus Economics forecast published in April, expected inflation for a horizon of six to ten years stands at 1.2%. In the current environment, a relaxed monetary policy is still needed to ensure price stability and support the economy. Consequently, interest on sight deposits at the SNB stands at −0.75%.