jean - pierre roth : economic prospects for 2005 in a subdued european environment summary of a speech by mr jean - pierre roth, chairman of the governing board of the swiss national bank, at the “ les rencontres au chateau ” meeting, sierre, 22 february 2005. the complete speech can be found in french on the swiss national bank ’ s website ( www. snb. ch ). * * * although the swiss economy expanded by almost 2 % in 2004, this was not sufficient to reduce unemployment significantly. hopes for an improvement in this respect are thus focused on this year. however, they might unfortunately remain unfulfilled once again. at the end of 2004, there were already signs of a slowdown in growth caused by the weak dollar and persistently high oil prices. these factors also played a key role in the national bank's decision to leave interest rates unchanged. overall, the international economy developed in line with expectations during the first two months of 2005 : the us and asia saw further growth, while europe was confronted with increased difficulties. the us economy is burdened with high budget deficits and the current account deficit. in asia, the chinese economy is booming, whereas japan is still struggling to find its way back to the growth path. the monetary situation in asia, too, appears less than stable. in europe, the economic environment presents a rather dim picture. germany, italy and the netherlands are expected to see rather modest growth, while the outlook for france is more upbeat. the uk is the exception : since the mid - 1990s, the country has emerged as the growth model for europe. for switzerland, the sluggish development in europe is especially regrettable, as the swiss export sector usually serves as the engine for economic recovery. all in all, switzerland's export industry is well positioned to benefit from higher demand from abroad. switzerland has been able to reduce its production costs per unit in the past few years, and the swiss franc even depreciated slightly versus the euro since the launch of the single currency. as regards domestic demand, consumer sentiment remains satisfactory overall, but this should not be expected to stimulate growth decisively. while construction activity is robust, it has lost some of its momentum. investment in equipment is still brisk, and the recent modest slowdown should not last too long. on the whole, the swiss economy is still on its growth trajectory, but it lacks stimuli from abroad. this situation is the same as the one underlying the

prospects contributed to a further rise in business confidence. these factors generally strengthen the willingness to invest. the gradual recovery on the labour market has also continued. the unemployment rate declined again slightly through to november. the demand for labour among companies has gradually picked up. due to continued pressure on prices and costs, however, businesses are only cautiously increasing their headcounts. employment growth is therefore likely to remain moderate. given the supportive global environment and favourable monetary conditions, the recovery in the swiss economy looks set to continue in the coming months. for 2018, we expect gdp growth of around 2 %, following 1 % in 2017. compared to the current year, 2018 should be characterised by stronger growth stimuli mainly from exports and corporate investment. inflation expectations, interest rates and exchange rates i will now review changes in inflation expectations and monetary conditions. inflation expectations for switzerland have remained practically unchanged over the past half year. households and companies still expect low inflation of around 0. 5 % in the short term. in the longer term, expectations lie at approximately 1 %. a similar view emerges from the talks conducted every quarter with over 200 companies by the snb ’ s delegates for regional economic relations. inflation expectations are thus within the range that is consistent with the snb ’ s definition of price stability. like inflation expectations, short and long - term interest rates in switzerland have hardly changed since summer. short - term money market rates have remained close to – 0. 75 %, and the yield on ten - year confederation bonds has fluctuated between 0 % and – 0. 2 %. the interest rate differential with the euro area has been largely stable. by contrast, the interest rate differential with the us has widened somewhat, due to higher us interest rates resulting from tighter monetary policy. there has, however, been movement since june with respect to exchange rates. over the past six months, the swiss franc has depreciated against the euro by about 7 %. in addition, since the last monetary policy assessment in september, a mild weakening has occurred against the us dollar. the trade - weighted nominal exchange rate for the swiss franc is currently about 5 % lower than in june. the depreciation in real terms is roughly similar. the weakening of the swiss franc has contributed to reducing the overvaluation. however, the franc is still highly valued. what lies behind these exchange rate movements? in the first phase, from june to september, the swiss franc depreciated against the