therefore contribute to production increases in the months to come. without confirmation that a pick up in inventory spending and an expansion of the labour force complete the traditional pattern of a recovery cycle, market concerns about the sustainability of the u. s. expansion are bound to persist. moreover, financial markets will continue to follow carefully the growing twin deficit in the u. s. and the potential risk it represents to global exchange rate stability. finally, persistently high oil prices may add another element of caution with regard to the sustainability of the currently impressive growth dynamic in the united states. on the monetary side, federal reserve officials have repeatedly pointed out that despite firm consumer growth and gradually firming spending, there remains much slack in the u. s. economy. as it stated in its release of september 16, the federal open market committee therefore believes that pricing power and increases in core consumer prices remain muted. or, as federal reserve governor don kohn stated a few days ago, “ it will be a while before we can be sure that a self - sustaining expansion is underway of sufficient strength and persistence to put the economy back on a path toward full employment. ” 13 switzerland will undoubtedly benefit from the improved outlook in the united states. unfortunately, apart from the lack of internal growth dynamic i discussed previously, switzerland ’ s growth prospective is further curtailed by economic developments in the rest of europe where there is currently little evidence of a robust and sustainable upswing in economic activity. this is reflected in the fact that despite more favourable exchange rate conditions, swiss exports during the second quarter declined again. while consumer spending had a stabilizing effect, investment also continued to decline. ex post, this phenomenon can be observed empirically for the recessions of the 1990s. don kohn ( the federal reserve board ) : “ productivity and monetary policy ”. september 24, 2003. while the swiss economy therefore remains weak, it is set to strengthen somewhat into the fourth quarter of 2003 and the first quarter of 2004. improved corporate expectations, a pick up in residential construction and strengthened financial conditions suggest that the trough of this cycle was reached during the second quarter of 2003. provided the growth momentum in the u. s. sustains itself, exports should rise gradually, followed by an increase in equipment investment. given considerable margin of slack in resource utilization, an improvement in the labour market can only be expected in the course of 2004. as we have indicated in our quarterly monetary policy assessment on september 18, the swiss national bank will continue to

thomas jordan : repercussions of the financial markets crisis in switzerland summary of a speech by mr thomas jordan, member of the governing board of the swiss national bank, at the zuger wirtschaftskammer, zug, 28 april 2008. the complete speech can be found in german on the swiss national bank ’ s website ( www. snb. ch ). * * * the turbulence in the financial markets that began in august 2007 is having a generally negative impact on the swiss economy and is spreading through different transmission channels. the downgraded growth prospects for the us economy are resulting in fewer imports from the rest of the world. since net exports and the global economic developments are of particular importance for switzerland, they are having a negative effect, which may be reinforced by the appreciation of the swiss franc. because of the major importance of banking in the industrial structure of the swiss economy, falling turnover on the financial markets can also affect switzerland more severely than other countries. moreover, rising credit risk premiums result in higher financing costs for companies, and the deterioration in bank balance sheets could be an additional factor in compromising the availability of credit in switzerland. finally, the increase in commodity prices has had a significant impact on the inflation rate in switzerland. despite the fallout from the financial crisis, the outlook for switzerland ‘ s economy remains good. in europe – which is crucial for switzerland – the economy will probably weaken only gradually. what is more, the swiss franc has only seen a moderate rise against the euro. as swiss households and companies are on a solid financial footing, they are shielded – so to speak – against a tightening in credit conditions. lastly, the stronger swiss franc vis - a - vis the us dollar has limited the impact of higher commodity prices. several other factors, like a robust labour market and a competitive industrial sector, could cushion the negative repercussions of the financial crisis in switzerland. against this backdrop, the snb is expecting real gdp to grow between 1. 5 % and 2 % this year. inflation should be below the 2 % mark again in the course of 2008. these forecasts still involve substantial uncertainties. given the present state of the economy, the current interest level seems to be appropriate. however, the snb will keep a close eye on further economic developments and inflation so that it is able to identify when action needs to be taken and react in a quick and flexible manner.