The end of the 1990s was characterised mainly by companies overinvesting in high-tech capital goods, especially in the IT sector. This investment frenzy was fuelled by both exaggerated expectations with regard to investment prospects and the rapidly falling prices of IT products. The bursting of the technology bubble and the ensuing correction in stock markets along with the sharp drop in the demand for capital goods marked the beginning of the global economic slowdown starting in the second half of 2000.

The economic slowdown had a stronger impact on Switzerland than on the US or the euro area. This is due to the fact that our economy is specialised in those two sectors that are most affected by the decline in demand: the capital goods industry and the financial sector.

Several factors give rise to hopes of an economic recovery. There was a significant adjustment of overcapacities, and monetary policy measures on an international level were aimed at creating favourable conditions for a revival of demand. Stock markets showed a stronger trend again, and the oil prices have fallen since the Iraq war.

There are still some reasons for concern, however. In particular, the weak domestic demand in continental Europe mirrors the continent's inability to set in motion an independent economic cycle.

So far second-quarter indicators do not suggest a turnaround. Any economic upswing in Switzerland depends to a large degree on a revival of demand from abroad. A pick-up of exports is expected to lead to a higher capacity utilisation rate, which in turn ought to give investment activity a boost. Monetary policy is very expansionary in Switzerland at the moment. This will not change until there are concrete signs of an economic uptrend.