Economic environment

International

At the start of 2016, the International Monetary Fund (IMF) again reduced its expectations with respect to global growth. The global economy grew by a mere 3.1 percent in 2015 and will probably grow by only 3.4 percent in 2016 and 3.6 percent in 2017. The IMF sees the greatest risks to growth in the economic slowdown in China, the tightening of monetary policy coupled with a strong Dollar in the USA, and in a possible escalation of current geopolitical tensions.

In the USA, the economy grew in real terms by 2.5 percent, in 2015 on the back of a robust expansion in employment, higher salaries, housing construction and corporate investments. In the next couple of years, a relatively slower rate of growth of around two percent is expected.

The economic monitor of the Liechtenstein Financial Market Authority (FMA) is observing a continuing slow recovery of the European economy based on lower oil prices, the devaluation of the Euro and an ongoing expansive monetary policy.

Switzerland

The lifting of support for the minimum Euro exchange rate on 15 January 2015 by the Swiss National Bank (SNB), as well as the weaker development of world trade and the somewhat slower momentum of the domestic business growth led to a clear slowdown in the Swiss economy in 2015. Investments in construction saw a fall and foreign trade developed moderately. The State Secretariat for Economic Affairs (SECO) expects a slow economic recovery. GDP growth of 0.8 percent is expected for 2015 and 1.5 percent for 2016

Liechtenstein

According to the Department of Statistics, the upward revaluation of the Swiss Franc has acted as a brake on the development of the Liechtenstein economy in 2015. Exports of goods to European countries and Asia decreased whereas exports to the USA increased slightly. In total, exports fell by 6.9 percent. Employment grew only slightly. Economic prospects are subdued.

Interest rates and currencies

The financial markets are distinguished by an increasingly divergent monetary policy situation between the USA and the other major currency areas. On the one side, in December 2015, the US Federal Reserve raised interest rates slightly by 0.25 percentage points for the first time since 2006. On the other, the European Central Bank (ECB) and the Swiss National Bank (SNB) are continuing with their expansive monetary policy. Throughout the world long-term interest rates remain at an extremely low level.

This development is reflected in the foreign currency markets. The US Dollar is strengthening while the Swiss Franc and Euro are tending downwards.

In view of the sluggish economic growth and the extremely low level of inflation, the ECB relaxed its monetary policy still further in December. Its most important measures included reducing the already negative interest rate for deposits from –0.2 percent to –0.3 percent and extending its bond purchasing programme (i. e. quantitative easing) amounting to EUR 60 billion per month until at least March 2017.

Since lifting its support for the minimum exchange rate for the Euro, the SNB is continuing to base its monetary policy on two pillars, i. e. negative interest rates and targeted interventions on the currency market. In December 2015, the SNB decided to leave the target range for three-month LIBOR at between –1.25 percent and –0.25 percent and the (penalty) interest rate for demand deposits at –0.75 percent.

Equity markets

2015 brought a slight minus of about two percent for the key Swiss Market Index (SMI), which lists the 20 most important equities. In an international comparison, the SMI turned in a modest performance. Thus, for example, the DAX in Frankfurt and the French CAC 40 were both up around 10 percent, while the Nikkei in Japan rose about 9 percent and the Nasdaq tech index in the US by about 8 percent. A weaker performance than the SMI was posted by the British FTSE 100 in London ( minus 4 %), while the performance of the Dow Jones Industrial, was roughly the same as the SMI with a minus of about two percent.