The Swiss National Bank (SNB) announced this morning that it is cutting interest rates again 1% to 0.5%. This drop of 50 basis points, expected by the market, serves as a marker for the foreseeable cuts that the European Central Bank will carry out throughout 2025, when analysts expect Frankfurt to close its official rates at 2%, or even less.
While this fall arrives, the SNB is ahead of most central banks and continues to put the scissors in official interest rates. This new descent delves into an economy that seems increasingly cold. “In the period since the last evaluation of monetary policy, inflation has once again been lower than expected. It went from 1.1% in August to 0.7% in November,” he indicated. the entity in a statement. The BNS has indicated that the low evolution of prices is fundamentally conditioned by national services.
The new forecasts from the Swiss central bank predict that inflation in the Swiss Confederation will flirt with 0% in 2025. Seeing the risk of deflation, the market already assumes that the SNB will continue to reduce interest rates to zero. So much so that the Alpine debt is at minimum profitability. This drop may be a precursor to what the ECB will do in the next meetings.
The European canary is cold
Switzerland’s GDP growth could mirror the rest of Europe: the chocolate nation saw an increase of its added value of 0.4% in the third quarter coinciding with that of the European Union as a whole, according to Eurostat data. Both parameters have had a similar evolution over time since the end of 2021.
The biggest difference between the macroeconomic indicators is, however, inflation. While the European price index posted year-on-year variations of 11% at the worst of the inflationary crisis (at the end of 2022), the Swiss CPI barely reached 3%, according to Eurostat. Since that moment, both indicators have gradually decreased. Although eurozone inflation remains above 2%, Swiss prices have been down for two months below 1%.
The Swiss National Bank, as a proud member of a neutral State, has more room for maneuver than the meetings of the European Central Bank, where the evolution of the twenty euro countries as a whole has to be evaluated and the realities of each one analyzed.
The decisions of the BNS can serve as a precedent for what is to come in European monetary policy and, for now, the canary in the mine seems to be cold. With weak growth – in 2023, Swiss GDP increased by 0.7% in constant prices, according to your statistical office— and an inflation that borders on neutrality, fears of a new economic winter in Switzerland and Europe they reappear like old ghosts.
Still far from a new “whatever it takes“
In 2014, the polychromatic crisis that hit the Old Continent ended. The Great Recession tainted Europe with job destruction, mistrust between Member States, budget cuts, demolition of the real estate sector and a apathy in economic activity that lasted for years, with low levels of investment and growth.
The scenario today is not the same as 12 years ago, when Mario Draghithen president of the ECB, saved the euro with three words: “Whatever it takes“(“Whatever it takes.”) That speech, in addition to calming the markets, led the ECB to follow the Japanese path: lower interest rates at 0% and flood all commercial banks in the eurozone with liquidity. Europe still has not recovered from that all or nothing bet.
The situation in Switzerland, however, brings up the fears of those years, when the continent was bordering on deflation and economic depression, and Frankfurt launched an expansionary policy. Although the scars from then have healed (a good proof was the response during the pandemic), new wounds have been opened in Europe: industrial stagnation in Germany, instability in France, a new hostile US presidency and a war on the eastern flank of the European Union.
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