Switzerland is expected to see the Consumer Price Index drop -0.2% in November, bringing the annual inflation rate to 2.0%. The Swiss National Bank predicted on November 20th that the selloff in commodities (and oil and in particular) will mean that “price stability will be restored sooner than expected, and inflation is likely to fall below 2% as early as the end of this year.” The announcement accompanied a massive surprise rate cut, with Jean-Pierre Roth and company slashing borrowing costs by a full percentage point to address the “higher risk of a marked slowdown in economic activity” from appreciably worsening international conditions. Indeed, 4 out of the top 5 of Switzerland’s main trade partners are now in recession, threatening dry up demand for exports. Economists expect the pace of Swiss economic activity profoundly stagnate in the second half of 2008 and into 2009, with GDP growth slowing a whopping 75% before the first signs of recovery begin to emerge in the third quarter of next year. On an annualized basis, the economy is expected to add 1.8% this year and yield a nil result for 2009, down from a respectable 3.3% expansion in 2007. While the markets continue to price in no changes in benchmark borrowing costs, traders may see the SNB continue to surprise with monetary easing should the acute economic downturn send inflation too far below the 2% mark.
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