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LLB Annual Report 2021 de

Economic environment

Information checkedInformation unaudited Information geprüft Information ungeprüft Economic environment

In 2021 too, the global economy was largely influenced by the effects of the corona pandemic. Although the global economy had overcome the severe recession of 2020, a full recovery remained elusive. In addition to the various waves of the pandemic, ongoing supply chain problems acted as a brake on the economic recovery. Economic uncertainties remained due to the continuous appearance of variants of the virus.

International Perspectives


In the US the rapid return to a restrictive fiscal policy is generally regarded as the cause of the lame economic recovery following the great recession of 2008/09. The new US administration and Congress did not want to repeat this mistake. Accordingly, in Spring 2021 a recovery package totalling USD 1.9 trillion was put together with the goal of eliminating underemployment as quickly as possible. Private households were able to benefit from this package with the added income flowing mainly into consumer spending. In contrast, the recovery in the service sector stalled on account of the wave of infections during the summer months. In Autumn, Congress approved an additional infrastructure renewal programme amounting to  USD 550 billion over a period of ten years. However, so far the job losses suffered during the crisis have not been recouped.

Euro zone

As a result of the lockdowns in various countries, economic output declined during the first quarter. However, demand increased sharply with the lifting of restrictions although it has not yet attained pre-crisis levels in the larger economies. On the one hand, this is attributable to weaker financial policy impulses; the EU reconstruction fund will only become fully effective in 2022/23. On the other hand, persisting supply chain bottlenecks are continuing to adversely affect growth, above all in the automobile industry. On account of the proportionately large share that automobile manufacturing represents in overall economic added value, this has had a particularly negative impact in Germany. The fourth wave and new variant of the virus again triggered increased uncertainty towards the end of 2021.


Economic development in Switzerland was also largely driven by the course of the corona pandemic. The contact restrictions during the Winter led to a decrease in value added during the first quarter which, however, was more moderate than in some euro zone economies. Private consumption and net exports subsequently underpinned a robust recovery. Consumer demand benefitted from the easing of restrictions, while the upswing in global trade boosted exports. In the third quarter, gross domestic product exceeded pre-crisis levels. The good health of the employment market was reflected in the low unemployment rate.


As a small, open economy, Liechtenstein is very dependent on the global economic situation. As a result of the corona pandemic and its consequences, the Principality experienced a sharp decline in export activities at the start of the worldwide recession. Nevertheless, the Liechtenstein economy proved to be very resilient. This also applied to the financial services sector. Once again, the robust employment market acted as a stabilising factor. Furthermore, in 2021 the financial sector benefitted enormously from the high capital and liquidity buffers, which strengthened customer confidence and once again contributed to Liechtenstein’s reputation as a stable financial centre. The systemic risks were assessed as being relatively low.


In spite of China’s dynamic recovery following the corona crisis in 2020, at the end of the year the country’s economic development clearly lost momentum. In addition to the pandemic, energy shortages and high basic materials prices, this was also attributable to structural problems. In this context, the crisis on the real estate market is especially relevant. Against this backdrop, the communist party has decided to place the focus on distribution policy goals in futureDistribution policy and the urgently necessary consolidation of the real estate sector will probably continue to exert a negative effect on the rate of growth.


Inflation has once again become a topic on the financial markets. By the end of 2021 inflation rates had reached levels not seen in the developed economies for decades.

The debate is continuing about the whether the latest rise in inflation is due to supply or demand-related reasons. The central banks point to the supply-side causes such as supply chain shortages and higher base material prices, which should lead only to a temporary acceleration of inflationary pressure. They are assuming that, over the medium term, the rate of price rises will return approximately to their envisaged targets. Some investment strategists are sceptical about this. In their opinion, the rise in inflation is due above all to demand considerations. They therefore do not expect any rapid easing of the situation. Which of the parties is correct is not yet clear. However, so far there is no sign of a wage/price spiral. It can be assumed that the latest rise in inflation is due both to supply and demand-related reasons. In the medium term, investors will probably have to count on higher rates of price rises in comparison with past years.

Interest rates

Monetary policy conditions tightened during the year under report. For example, the central banks of Brazil and Russia reacted to rising inflation rates by significantly raising key interest rates. Among the developed economies, so far the central banks of smaller countries such as Norway, the Czech Republic, Poland and New Zealand have increased interest rates. One exception is the Bank of England, which raised its base rate on 16 December by 15 basis points to 0.25 per cent.

In December, the Fed decided to accelerate the reduction in the purchase of securities on account of the worrying inflation figures. However, interest rates will probably only be increased after the end of securities purchases, i.e. in the second quarter of 2022 at the earliest.

As announced, the European Central Bank will end the Pandemic Emergency Purchase Programme (PEPP) in March 2022. Conversely, the Asset Purchase Programme (APP) will be temporarily expanded to EUR 40 billion. According to the President of the ECB, Christine  Lagarde, it is unlikely that the base interest rate will be increased in 2022.

The Swiss National Bank kept its monetary policy unchanged. From its perspective, the Swiss franc is still overvalued. If necessary, it will again intervene on the foreign exchange market. Consequently, money market interest rates will most probably not rise during the coming year.


Exchange rate fluctuations on the international foreign exchange markets remained within reasonable bounds in the year under report. On the whole, they stayed within the scope of “normal” volatility. One exception was the Turkish lira, which plunged in value.

The Swiss franc gained in value relative to the euro and Japanese yen especially towards the end of 2021. This was probably attributable to the fact that the European Central Bank is unlikely to alter its expansive course. There are also indications that the Swiss National Bank intervened less often than, for example, in the previous year at the height of the corona crisis. The franc lost a little ground in relation to the US dollar, the Canadian dollar and the Russian rouble. The US dollar benefitted from expectations of a larger interest rate advantage, and the Canadian dollar and the rouble from higher base material prices.

Equity markets

Several factors contributed to the price gains on the international markets in the year under report. The most important of them was the economic recovery following the corona crisis.  This generated strong profit gains for companies in spite of the pandemic, supply chain problems and higher base material prices. The relaxed monetary policy coupled with fiscal support also had a positive impact on equity prices in 2021. On account of the low and, in some cases, negative long-term nominal interest rates, investors apparently see no alternative to equities.

Even the proposed sustainable restructuring of national economies provided gains in equity prices, even though it did affect their relative performance. On the financial markets those that benefit from the decarbonisation of the economy are seen as having good growth prospects. Investors gave preference to the equities of these companies which include, for example, the manufacturers of electric vehicles. However, the opportunities and risks associated with this structural transition cannot be reliably assessed at present.

The high inflation rates and the looming tightening of monetary policy have exerted pressure on equity prices in recent months. The war in Ukraine has added a further negative factor. The reductions in growth directly associated with the sanctions imposed can be borne by the EU states, but the high dependency on Russian energy imports should be viewed as more critical. The fall in incomes caused by the sharp rise in energy prices will have a significant adverse impact on economic growth. However, the stock markets have already factored this in to some extent. Higher volatility can be expected to remain for quite some time.