The balance for short-term interest rate expectations remains in positive territory, although the majority of survey participants now anticipates that rates will remain unchanged. Within the scope of this month's "special question," the financial experts were asked to convey their assessment regarding the effects of high inflation rates on the Swiss stock market. The analysts predict that the Swiss Market Index (SMI) will outperform the MSCI World index amid times of high inflation and recommend investing in companies in the pharmaceuticals and food sectors.

The results of this month's survey conducted in conjunction with the Financial Market Test Switzerland
once again paint a negative picture of economic momentum in the medium term. More than three-fourths of the financial market experts forecast a deteriorating economic situation in Switzerland on a six-month horizon. Consequently, the corresponding indicator for economic expectations declined noticeably by 13.1 points to the -76.9 mark. The assessments of the current economic situation also reveal a downward trend, although still wavering at a high level. Only 41% of respondents still view the prevailing economi environment as "good," while the remaining analysts regard the climate as "normal". As a result, the relevant indicator dropped by 12.2 points to the 41 level.

Switzerland is also battling high inflation rates due to increasing energy prices. Survey results reveal that 35.9% of participants believe that inflation rates will climb even further, while 30.8% of the analysts see no change on the inflation front in the coming six months. The corresponding balance of indicators for the inflation rate thus fell sharply by 14.4 points to the 2.6 threshold.

Despite the trend toward rising prices, only 28.2% of the financial market specialists anticipate that shortterm interest rates will increase (down 27.1 percentage points versus the previous month). In contrast, two-thirds of respondents foresee no change in short-term interest rate levels. Overall, the relevant indicator plunged markedly by 25.8 points to the 23.1 mark. Regarding long-term interest rates, slightly more experts (46.2%) see a pick-up than in the previous month's survey. However, 41% of the
participants see no change in long-term rates as the most likely scenario. In the wake of the recent
interest rate hike by the European Central Bank (ECB) to the 4.25% level, most of the analysts (59%)
expect no change in the short-term interest rate differential between Switzerland and the Eurozone: But
28.2% of the experts predict that the interest rate spread will narrow.

On the heels of some turbulent months on the global stock markets, the Swiss Market Index (SMI) has
recorded a renewed steep downward trend since mid-May. Nevertheless, nearly two-thirds of the financial market experts expect the Swiss stock market to stage a recovery in the coming six months. On the other hand, 18.9% of the analysts continue to anticipate that share prices will retreat. Overall, the corresponding indicator rose by 8.9 points to the 45.9 level. The Swiss franc exchange rate has been holding steady against the euro for several months. Accordingly, the majority of survey participants (61.5%) foresees no changes in the exchange rate in a six-month timeframe. But 35.9% of the respondents predict that the Swiss currency will gain ground against the euro.

Turning to oil prices, a significant percentage of the analysts (60.5%) expect to see a decline. The price of oil has been continually hitting new record highs for months. However, merely 10.5% of respondents
believe that the surge in oil prices will prevail. Gold prices too have followed a similar trend historically. But 40.5% of survey participants expressed the view that the price of gold will continue to climb. In contrast, almost one-third of the experts expect decreasing gold prices. Regarding the corporate earnings situation in Switzerland, 69.4% of the financial market specialists agree that the situation will worsen. One-fourth of the respondents forecast no change in the outlook for company earnings. The lion's share of the analysts (83.3%) predicts that profit margins will shrink, while none of the experts anticipates a recovery. Hence, the relevant indicator sank by 12.8 points to reach -83.3. Roughly three-fourths of the participants (73.3%) expect the unemployment rate in Switzerland to increase in the medium term. Not a single analyst predicts that the jobless rate will shrink, however. And around one in four of the respondents expect no change here.

This month's "special question" addresses the effects of high inflation rates on the Swiss stock market.
The responses reveal that 48% of the analysts predict that the Swiss Market Index (SMI) will outperform
the MSCI World index amid times of high inflation, while just a minority of 22% of the experts believe that
the SMI will turn in an underperformance. In addition, 33% of the respondents anticipate that pharmaceuticals companies will outperform other sectors on a 12-month horizon due to high inflation
rates. Additional sectors are likely to outperform the rest include the food, telecommunications, chemicals and construction materials industries.

The survey process and methodology
The ZEW has conducted a similar monthly survey for Germany since 1991. The aim of the Swiss survey is to develop indicators both for Switzerland’s general economic climate as well as for the Swiss services sector.
Specifically, the financial experts are asked to convey their medium-term expectations for important
international financial markets regarding the trend of the economy, the inflation rate, short- and long-term interest rates, share prices and exchange rates. In addition, the financial analysts are also asked to assess the earnings situation of companies in the following Swiss services sectors: banks, insurance, consumer/retail, telecoms and services as a whole.

The balances are derived from the net difference between the percentage of positive and negative
responses. Figures in parentheses show the changes for each indicator compared with the previous
month.

Detailed results
More detailed results − including survey results regarding the economic trends in other countries − can be found in today's published edition of the "Financial Market Report Switzerland".


Credit Suisse
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Disclaimer
This document was produced by and the opinions expressed are those of Credit Suisse as of the date of writing and are subject to change. It has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell any security. Any reference to past performance is not necessarily a guide to the future. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof.

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