swiss economy has been able to benefit from the ongoing recovery of the global economy. while the weakening of the euro with respect to the swiss franc is dampening export activity, exports are being supported by growth in foreign demand. overall, today the outlook for the swiss economy remains a favourable one. admittedly, the adopted strategy is not without risk which comes primarily in the form of increased currency and concentration risk in the snb ’ s balance sheet. this risk reflects the burden the snb has assumed in order to protect the swiss economy from the threat of deflation. the snb has sufficient equity capital to withstand even large losses. when considering the favourable economic outlook for switzerland, we must not lose sight of the fact that the latest tensions on the financial markets have increased the downside risks. should these downside risks materialise and, via an appreciation of the swiss franc, lead to a renewed threat of deflation, the snb would take all the measures necessary to ensure price stability. in other words, the snb would do whatever it takes to fight deflation and safeguard price stability in the medium - and longer - term. switzerland has an obvious and enormous interest in europe ’ s ability to manage through this public debt crisis decisively and ultimately successfully. europe ’ s ability to navigate out of the current crisis is also very much in the interest of the united states and indeed the world. when i say this, i don ’ t mean to refer solely to the potential economic strains as a result of europe ’ s public debt concerns. what is ultimately at stake is the vision of the founding fathers of the eu ; the vision of a continent living in peace and prosperity and thereby contributing to a stable world order. see gerfin, michael and boris kaiser ( 2010 ), “ auswirkungen der immigration der jahre 2002 bis 2008 auf die lohne in der schweiz ”, in : die volkswirtschaft, no. 6. in 2009, annual growth of private consumption amounted to 1. 2 % in switzerland, while in the euro area, it contracted by 1. 2 %. merely upholding this vision will not, however, resolve the debt situation. but it explains the bold and decisive steps taken by european governments, together with the international monetary fund ( imf ), to begin to address market concerns. it also explains why after a rapid deterioration of public finances in europe, collective monitoring of fiscal discipline and peer pressure experience a revival.

could eventually follow the us path towards gradual normalisation, and central bank balance sheets could probably decline to levels more consistent with ‘ normal ’ central banking operations. such steps may well raise the real long - term interest rates to levels more in line with economic fundamentals, especially as budget austerity has faded in most of these economies. should this happen, emerging countries may start finding easy and cheap external financing less forthcoming. currently, cross - border bank flows from advanced economies into the emerging world are already experiencing headwinds from a deflated by cpi inflation, south african 10 - year government bond yields in the past five years averaged 2. 55 %, about 35 basis points less than the average of the previous 10 years – this is despite the gradual deterioration in south africa ’ s sovereign credit rating in recent years. page 2 of 8 tighter regulatory environment, which has generally led banks to reduce risk exposure and place greater focus on the domestic business. 2 a situation where emerging countries have to compete harder for international capital could be another element in the broader picture of ‘ reduced globalisation ’. 3. another step towards lesser globalisation? according to the world bank, trade in goods and services as a share of gdp has generally been declining post - crisis. for sub - saharan africa, in particular, it had fallen as low as 55 % of gdp in 2015 from 74 % in 2008. while cyclical weakness in import - intensive fixed investment growth accounts, to some extent, for this partial reversal of earlier trends, other – more structural – factors are also at play. these include the sharp slowdown in the expansion of global value chains ( gvcs ) as the number of trade protection measures put in place across the world now tends to exceed that of liberalising measures. 3 at the same time, current political trends in some advanced economies make the imposition of restrictions on migratory flows more likely. to some extent, the challenges of attracting capital from advanced economies could be compared to the slowing growth in gvcs. in the late 1990s and early 2000s, the growing development of securities markets in emerging countries, the further deregulation of the insurance and pension fund industries in advanced economies as well as a reduced ‘ home bias ’ by international investors all contributed to a structural rise in the global portfolio allocation to emerging market assets. the monetary policies implemented after the global financial crisis exacerbated that trend, but this structural shift appears to have now run its course. 4. potential challenges and benefits a slower