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SWISS ECONOMY 2012

SWISS ECONOMY 2012
To       The Right Honorable Swiss National Bank President Philipp Hildebrand       
From:  Athinarayanan Sanjeevraja
Date:  December 24, 2011
RE:     Sovereign Debt Crisis in Europe & Real Estate Market   
Suggestion:
Good Morning President I listened Schweizer Radio DRS1, you said that sovereign debt crisis in Europe and real estate market affect the Swiss economy. Well. The slow pace of the global economic recovery, intensifying sovereign debt crisis and high unemployment all continue to weigh on Switzerland residential property market. From my perspective Switzerland’s real estate market remains relatively buoyant. The main drivers of the demand for real estate in Switzerland are immigration, low interest rates and favourable mortgage lending standards. The free movement of people between Switzerland and the European Union has fundamentally changed the Switzerland real estate market. Moreover, low interest rates will continue to provide the support for real estate market. I knew that SNB cannot maintain its policy of low interest rates forever because this would create imbalances elsewhere. But there is still chance that real estate investors will benefit from continued low interest rate levels for much of the year 2012. As a result, Switzerland will continue to have great locational appeal for both corporate and individuals. 
Yes, as you said that there are uncertainties associated with the European sovereign debt crisis emerge clearly as the greatest economic risk. Such a crisis could have severe consequences on the real economy of Switzerland. The relative supply of government bonds can affect the interest rates if arbitrage is imperfect. Such effects are relatively small. ECB using large scale government bond purchases to lower long term interest rates and need to take account of increased government debt issuance. However, in practical, ECB asset purchases and increased government debt issuance have been roughly the same scale. I have said on a number of occasions to European Commission President Mr. Barroso, Eurobond would prevent contagion for weak countries and it should give better chances for growth. Let’s hope for the best solution from European policy makers.
Finally, Swiss Franc, I wrote to you regarding the rise in Swiss franc, in the month of July 25, 2011 and September 25, 2011, saying that large margin of currency appreciation in a short period of time is not good for the sustainable economy. As a result, Switzerland economic growth slowed in third quarter 2011. Moreover, it reduced the competitiveness of the Swiss exports, inflation turned negative in the month of October and November 2011 due to strong appreciation of Swiss Franc. SNB have taken appropriate measures on its Swiss franc to counter valuation introduce minimum exchange in the month of September 2011. Unfortunately, the Swiss Franc has been depreciated more against the US dollar than the Euro. In my view that put a cap on the exchange rate of CHF 1.10 per Euro to ease the burden. Switzerland GDP growth for 2012 will depend on the SNB’s exchange rate intervention. Therefore I recommend SNB should intervene directly to put a cap on the exchange rate of CHF 1.10 per Euro to create sustainable economy.
                   Gesegnete Weihnachten und ein glückliches neues Jahr!

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