Although it is not a member of the European Union (EU), Switzerland is anything but an island in the middle of Europe. In terms of its trade flows, Switzerland is more closely integrated into Europe than the average EU member country. The appropriateness of conducting monetary policy in isolation is thus all the more doubtful. Looking back at the recent experience of coexistence with the euro, the course chosen appears on the whole to have been beneficial. It had been feared that the launch of European Monetary Union would trigger turbulence in the Swiss franc/euro exchange rate. This has not materialised, however, and the opportunity for the Swiss National Bank (SNB) to provide its own monetary stimuli has proved beneficial to the business cycle.

The economic trend is fraught with numerous uncertainties, both globally and within Switzerland. Even if the usual range of instruments has been virtually exhausted, the SNB will still take action – using unconventional means if necessary. There is a considerable risk of a downturn in the business cycle, and 2003 will be another year of low GDP growth. A return to expansion in line with the growth trend of approximately 1.5 percent before 2004 now looks impossible. Inflation is unlikely to pose any problems this year or next, remaining at between half and one percent.