The fiscal stimulus is considerable and there are signs of an upturn in employment and consumption. But new and larger outbreaks of infection in several states pose significant downside risks. Closer to home, the ASEAN-5 economies [2] are expected to contract by 2.6%. They will benefit from the emerging recovery in manufacturing; while the collapse in tourism will weigh more on some economies. The recovery will also be uneven across industries, ranging from L-shaped to U-shaped to V-shaped. Activities with greater “in-person” interactions – such as hospitality, hotels and restaurants, and tourism – may have to reopen later, observe strict safe-distancing measures, and operate at much lower capacities. Capital-intensive manufacturing and trade-related services could recover faster as demand returns but they might still face frictions in their supply chains. Modern services, such as ICT and financial services, will probably do best given their ability to serve customers and carry out transactions through digital means. While a strong short-term growth bounce is plausible, the longer term recovery is likely to be weak and gradual. People may be slower to return to previous patterns of work as long as the virus is still circulating. Higher unemployment and greater job insecurity will weigh on household spending, particularly once income support measures start to taper off. Businesses are likely to hold back investments in view of heightened uncertainty and this will in turn dampen the strength of the recovery. There may be lasting shifts in demand patterns and the associated disruptions in business activities.

This measure was called ‘yield curve control’. For a comprehensive appraisal of unconventional monetary policy measures, cf. Borio, C. and A. Zabai (2016), Unconventional monetary policies: a re-appraisal, BIS Working Papers, 570, pp. 2–9. The SNB publishes a conditional inflation forecast that can also influence financial market participants’ interest rate expectations and therefore can also be regarded as a form of forward guidance. Filardo, A. and B. Hofmann (2014), Forward guidance at the zero lower bound, BIS Quarterly Review, March 2014. Page 3/8  Using negative interest rates, the central banks have, to some extent, reactivated the interest rate instrument, by taking certain reference rates below zero. Since negative interest rates reinforce the expansionary impact of quantitative easing measures, some central banks introduced both measures in combination. Currently, several central banks are using negative interest rates, including the euro area, Japan and Switzerland – although at different conditions and with different features. The SNB’s negative interest rate is primarily aimed at maintaining the traditional interest rate differential to the rest of the world, in order to make Swiss franc investments less attractive. The interest burden increases as soon as the SNB supplies the banking system with additional liquidity, especially through further foreign exchange market interventions. The negative interest rate and the SNB’s willingness to remain active in the foreign exchange market are thus two mutually reinforcing measures, which are having the desired effect. Nonetheless, the Swiss franc remains significantly overvalued.