| Ramzi Chamat
October 2023 marked a significant turning point in global monetary policy, with key institutions such as the ECB and the Fed pausing their interest rate hike cycles. This decision reflects a global economic slowdown and an adjustment to evolving economic dynamics, particularly notable in Switzerland. This article aims to analyze these changes and examine their repercussions at multiple levels.
The decision of the European Central Bank (ECB) to maintain its key interest rate at 4.5%, after a series of hikes, highlights the current economic uncertainty. Similarly, the Federal Reserve (Fed) also opted for stability, maintaining its range of key interest rates. These measures, reflecting caution in the face of a global economic slowdown, have significant implications for financial markets, consumption, and investments, with specific impact on the Swiss economy. We will explore these dynamics in depth, with a particular focus on their implications for the Swiss economy.
The ECB's downward revision of growth forecasts, from 0.9% to 0.7%, reflects a weakened economic situation. The decision to maintain the key interest rate at 4.5% is a direct response to this situation. Similarly, the Fed has kept its rates between 5.25% and 5.75%. This underperformance of inflation in the United States relative to the key interest rate indicates the effectiveness of the previous monetary tightening, despite robust growth in the U.S. GNP at 4.9%, contrasting with this caution.
The massive sale of U.S. government bonds and the rise in yields have had significant repercussions on investors, including institutions like the Swedish national bank. The rise in yields in the United States and the strength of their economy have impacted the euro and the eurozone. The combination of high inflation and expensive credit has curbed consumption in the eurozone, prompting the ECB to adopt a data-driven and cautious approach.
Switzerland, with its next interest rate meeting scheduled for December, remains vigilant in the face of these developments. The strengthening of the Swiss franc, despite a global weakening of the economic situation, poses challenges for Swiss companies, especially in the service and hospitality sectors. Private consumption, supported despite inflation exceeding wage increases, remains a pillar of the Swiss economy.
After a slowdown in 2022, the construction sector in Switzerland is showing signs of recovery, with a slight increase in investments in residential buildings. This trend is stimulated by a growing demand for housing in the face of limited supply. The significant drop in swap rates, particularly for medium and long durations, offers more attractive financing opportunities for construction projects.
The global economic situation, with its cautious monetary policies and conjunctural challenges, has a direct impact on the Swiss economy. The strength of the Swiss franc and the relative stability of the economy offer opportunities, but also challenges, particularly in terms of export competitiveness and internal purchasing power. The response of the Swiss National Bank at its next interest rate meeting will be crucial.
The ECB's decision to keep rates stable could positively influence the European real estate market. In Switzerland, this stability could lead to an increase in real estate demand, with investors looking for safe investments in the face of economic uncertainty. This trend could also ease inflationary pressures in the real estate sector, offering a breath of fresh air to buyers and investors.
Swiss export industries are particularly sensitive to global economic fluctuations. The global economic slowdown, combined with a strong Swiss franc, could put pressure on Swiss exporters. However, the constant quality and innovation of Swiss products could help maintain their competitiveness in international markets.
The decision of major central banks to maintain their key interest rates in October 2023 reflects a global economic slowdown. While the American economy shows some resilience, Europe remains cautious. In Switzerland, the impact of these trends is felt on the strength of the franc, consumption, and investments. The next meeting of the SNB will be crucial in defining the country's economic trajectory. The balance between stabilizing inflation and stimulating growth remains a major challenge for central banks worldwide.