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E. GUTZWILLERu bi Basel, Q2-2016 (April 2016) Economic Environment and Outlook Switzerland: In spite of the uncertainties concerning the emerging markets and the European economy, the outlook in Switzerland is still resilient, with a moderate path growth of 1%. The strength of the Swiss franc remains a big concern, having an impact on the competitiveness of the corporate sector. Companies are less competitive but are also supported by lower costs related to oil and other commodities. Domestic consumption will be fairly stable, unemployment being low. With negative inflation in 2016, the SNB will continue its accommodating monetary policy. Expected increasing growth in Europe will have a positive impact. USA: Europe: Asia: The US economy will continue to expand in the second quarter 2016 in spite of growing fear of a recession. Consumption is positive, jobs continue to increase, the savings rate is rising. Prices in the housing sector are improving, the residential investment should remain buoyant. Short rates will not rise before the year-end but the Fed will be vigilant due to the need, under pressure from the financial markets, to continue to tighten the monetary policy and control public deficits. The problems of the financial sector are not over, new tough rules have to be implemented, but losses in banks are already decreasing. US companies are fairly competitive but the overall corporate default rate will rise and will be much higher in the energy sector. Europe and a weak Euro will continue to be challenging. This balanced scenario could be put in jeopardy by the international tensions, the debt and political crisis in Europe and much less growth in China. Brazil and Russia are already in recession. The industrial production is picking up in the Continent. GDP growth rates are improving slowly, some European countries are struggling to get out from their public debt financing problems. Greece remains a problem. The ECB has announced a huge package of measures to stimulate the economy with interest rate cuts, expanded quantitative easing and incentives to increase the bank lending. There is a decrease of confidence and trust in the monetary system but the markets will be taking a more positive view of the central bank action in the medium term. Manufacturing is rising but inflation is too low. In the UK, the Bank of England could be forced to be less generous, it ponders on a new monetary strategy as the economic growth is strengthening and inflation remains subdued. Scotland and the referendum on the membership of the European Union will continue to bring uncertainty. The government in Japan is pushing for more growth and the central bank, with its negative interest rate policy, pledged to expand again its asset purchases, buying bonds and treasury bills. The public debt has already soared. The economy will start to recover, private consumption and public investment fuelling growth. A weakening yen is easing corporate pessimism. In China, exports are less vigorous than expected, with a weak domestic demand economy is still subdued. In India the new government continues to spur policy changes to improve growth. Currencies - Outlook CHF: USD: EURO: GBP: JPY: Gold: Oil: stable, due to its role as a safe haven currency and the relative good performance of the Swiss economy. The SNB will continue to sell Swiss francs to avoid a further appreciation. firm stable volatile, could weaken. to remain weak, likely to soften again if more central bank intervention. recovery with continuing economic and geopolitical uncertainties. weak but could stabilise Financial Markets - Outlook Interest Rates Bonds Stock Markets Switzerland low stable weak Europe low positive weak UK low stable volatile USA stable stable volatile Japan low stable weak The aforementioned Economic Environment and Outlook shall not constitute a recommendation or an investment advice. It is not the result of any financial analysis and the “Directives on the Independence of Financial Research” issued by Swiss Bankers Association does therefore not apply. KAUFHAUSGASSE 7 – CH 4051 BASEL – TEL +41 61 205 21 00 – FAX +41 61 205 21 01 WWW.GUTZWILLER.CH