Guest Lecture: The Economic Situation - Forecast 2016 by Prof. Dr. Aymo Brunetti
Prof. Dr. Aymo Brunetti’s guest lecture attracted great interest among Rochester-Bern alumni and students as well as external guests. In his presentation, he looked back at the challenging past year and gave an economic forecast for 2016.
Aymo Brunetti’s talk started with a look back at a challenging 2015, when the Swiss economy was hit by a strong exchange rate shock at the beginning of the year. The cost shock after the disengagement of the minimum rate caused a strong contractionary effect on exports. However, the economy is judged to be resilient enough to avoid a recession in 2015 and 2016. In the second quarter of 2015, the GDP-growth was better than expected and the exports grew again primarily thanks to the resilient demand for pharmaceutical products.
Forecast for 2016
Based on his considerations about 2015, Brunetti continued with an outlook for 2016. As the recent IMF-forecast for GDP-growth of the main trading partners shows, there is no imminent risk of negative foreign demand effects on Switzerland’s economy. The most recent forecast from SECO shows a mildly optimistic outlook, assuming that the exchange rate won’t move. The Swiss National Bank (SNB) still has clear possibilities to intervene on FX-markets in case there should be strong appreciation boosts of the Swiss Franc.
The main macroeconomic preoccupation of the coming years now is how to normalize the extremely expansionary monetary policy without triggering macroeconomic shocks.
The low inflation rates have provoked a certain fear of deflationary spiral. However, falling prices can have two reasons: On one hand, there is the supply side, which means beneficial disinflation. On the other hand, there is the demand side, which means harmful deflation. It is important to consider that disinflation isn’t the same as harmful deflation. Due to exaggerated deflation fears, there is a danger that normalization will come too late which leads to considerable danger of overheating in the medium run.