Switzerland: Deflation risk
Positive growth is projected to resume from the end of 2009 onward, driven by growing demand from trading partners and improving activity in financial markets. Unemployment may rise to about 5% while inflation is projected to be low but positive. Leading business cycle indicators have improved markedly in recent months, turning positive from low levels in the second quarter of 2009. Orders in manufacturing have risen to a level indicating expansion in the fourth quarter. Growth is expected to pick up in 2011, reaching 2.1% at the end of the year.
Once the recovery takes hold, monetary policy stimulus will need to be withdrawn, but care will need to be taken to avoid deflation risk. While fiscal stimulus should be maintained in 2010, spending reductions need to be identified from 2011 onwards to adhere to budgetary rules.
©OECD Observer 2010