By contrast, banks reported a slight tightening of lending standards and conditions for corporate loans – especially loans to large companies. Low interest rates continue to have a favourable effect on the demand for loans. In addition, the robust growth in real estate prices, particularly prices for owner-occupied apartments, continued unabated in the third quarter. In this context, the SNB welcomes the recent advances achieved in Switzerland with the introduction of macroprudential instruments. My colleague Thomas Jordan will report on developments in the area of financial stability and macroprudential policy. Chart of conditional inflation forecast The (dashed) red curve on the chart represents the new conditional inflation forecast. It shows the future path of inflation, assuming that the three-month Libor remains unchanged at 0% over the next twelve quarters, and it covers the period from the fourth quarter of 2011 to the third quarter of 2014. For purposes of comparison, the (dash-dotted) green curve shows the conditional inflation forecast published in the previous quarter, which was also based on the assumption of a three-month Libor of 0%. Until the second quarter of 2012, the SNB’s new conditional inflation forecast is below the previous quarter’s forecast. This is because the earlier Swiss franc appreciation impacted on prices more quickly than expected. From the third quarter of 2012, inflation rises above the previous forecast, because at this point the negative base effect of price declines since mid2011 disappears.

In the construction industry, it has declined slightly, but remains at a very high level. Narrow profit margins and mounting concerns over the international outlook held companies’ demand for labour in check. The introduction of the minimum exchange rate has corrected the massive overvaluation of the Swiss franc and has given companies a sounder basis for their investment planning. This notwithstanding, the situation for a big part of the economy remains difficult. Waning global demand will continue to hold back export growth. Economic uncertainty, coupled with a difficult earnings situation for many companies, will curb corporate investment. Moreover, since October, the seasonally adjusted unemployment figure has risen again slightly. The deterioration in the labour market should constrain both consumer spending and investment in residential construction. It is likely that the Swiss economy will stagnate in the fourth quarter. For 2011 as a whole, real GDP growth of 1.5–2.0% can be expected. This is only because of the favourable economic development in the first half of the year. For 2012, the SNB is expecting economic growth in the order of 0.5%. Monetary and financial conditions In October and November, inflation turned negative, a development largely driven by the strong appreciation of the Swiss franc during the summer. Prices for a large number of tradable goods fell markedly. Following the introduction of the minimum exchange rate, the SNB is expecting temporarily negative inflation rates, but not a sustained decline in the general price level. Moreover, surveys also show that medium-term inflation expectations are still positive.