The economic situation in Switzerland has improved significantly during the course of the last year. Private consumption, construction investment and foreign trade in particular have contributed to the positive momentum. Economic prospects remain favourable for 2006 as well. The National Bank projects real GDP growth of just over 2%. Given the robust growth of the global economy and favourable exchange rate conditions, export demand is likely to remain strong. Equipment investment is expected to rise considerably, not least because of pent-up demand. Private consumption may benefit from an improvement in the labour market and higher real income. For the time being, however, construction activity is likely to remain static at a high level.

Despite a sharp increase in the price of oil, inflation in Switzerland remained within the range defined as price stability. The development of core inflation suggests that any major second-round effects are unlikely. The inflation forecast of the Swiss National Bank (SNB) shows that there are no threats to price stability in the short term. No change in the expansionary monetary stance would, however, push up inflation considerably. The SNB will therefore continue the gradual normalisation of monetary policy it has already initiated. However, the future development of the economy will determine the time frame and the extent of this normalisation process. Owing to a favourable inflation trend, the SNB is in a position to cautiously approach a neutral interest level which may be lower than in the past. It will continue to pursue an autonomous monetary policy.

The possibility of higher oil prices, a significant depreciation of the US dollar and a sharp increase in long-term interest rates currently pose the biggest risks to the economy. The positive outlook for the economic activity in Switzerland must not deter us from our efforts to tackle the country’s structural problems. The unsatisfactory level of growth that we have witnessed for some time now can only be overcome by rigorous implementation of structural reforms.