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LLB Annual Report 2023 de

Economic environment

Information unaudited Information ungeprüft Economic environment

The development of a bank is heavily dependent on the economic environment, as its business activities are closely linked to the general economic situation. Here is a look back at the general conditions in the 2023 financial year.

International perspectives


The US economy has shown itself to be amazingly resilient in the face of the Federal Reserve’s interest rate hikes. Even the turbulence surrounding the regional banking sector during the spring and the dispute over the federal budget in autumn did not have a lasting adverse effect on economic development.  However, at the end of 2023, the US still did not have a definite federal budget for the 2023/24 fiscal year.

Private consumption was the main driver of economic performance. It benefitted from continuing robust growth in employment and from savings accumulated during the pandemic. Furthermore, during the first half year, growth was boosted by an improvement in the external contribution, resulting mainly from bilateral trade with China. Whereas US exports to China stagnated during the first half year, imports from China fell by around 25 % compared with the previous year. In the third quarter the build up of inventories, in addition to private consumption, proved to be the most important driver of growth. However, the US economy lost some of its momentum towards the end of the year.

The rise in consumer prices slowed as a result of falling prices for energy and goods. Inflation in the service sector proved to be more stubborn on account of the trend with rental costs. But even here, price pressures have recently eased. Despite the fall in the rate of price increases, the Fed raised the key interest rate in four stages from 4.5 % to 5.5 % up to 26 July. By doing so, it was reacting to the excess demand on the employment market. At the end of the year, the first clear signs pointing to an easing of the situation on the employment market became visible. The expansion in employment slowed, the number of job vacancies fell and even wage growth weakened. It was probably due to this reason that, following the Open Market Committee meeting on 13 December, the Fed held out the prospect of more interest rate cuts for 2024 than the market up to that point had anticipated.

Euro zone

On the whole, economic growth in 2023 was weak. The drop in real income caused by the energy price shock of 2022 dampened private consumer demand. As a result of the interest rate rises, construction activity almost came to a halt. Weak global trade depressed exports. However, the extent of the downturn in growth differed widely between the individual European countries. Of the key economies, economic development was weakest in Germany, whereas Spain registered strong expansion. Germany suffered above all from the weak global industrial activity and high – in international comparison – electricity prices, which particularly afflicted its energy-intensive sectors.

The European Central Bank (ECB) raised the key refinancing rate in six steps up to mid September from 2.5 % to 4.5 % . The interest rate on deposits held be the ECB climbed from 2 % to 4 %. The ECB justified the interest hikes with the need to counter stubbornly high core inflation. Although economic momentum weakened further towards the end of the year, it continued with its restrictive course not least because of the high collective wage settlements. In December, ECB President Christine Lagarde, was considerably more reserved in her comments about possible interest rate cuts in 2024 than the representatives of the US Federal Reserve.

The Stability and Growth Pact was suspended on account of the corona pandemic and the war in Ukraine until the end of 2023. In December, the finance ministers of the member states of the European Monetary Union agreed to a reform of the Stability and Growth Pact, which will enable a more flexible fiscal framework for the individual states. However, only time will tell to what extent this will facilitate debt reduction. Debt ratios have decreased as a result of the jump in inflation experienced in 2021 / 22. However, this trend will not continue. If the inflation rate falls to within the range of 2 % to 2.5 %, a more restrictive budgetary management will be necessary to at least stabilse the debt ratios.


The takeover of Credit Suisse by UBS in 2023 meant that Switzerland lost another traditional pillar of its corporate establishment. The merger meant that greater financial turbulence was avoided but at the price of quite substantial financial risks for the state and the national bank. From a regulatory perspective too, the newly created mega-bank should be viewed critically. Caught in the wake of the weak European economic situation, business development in Switzerland slowed, whereby corporate investment was the main victim. The expected job losses, as a result of the merger between UBS and Credit Suisse have not yet materialised to any great degree.

Switzerland is one of the few industrialised countries in which the inflation rate has again fallen to within the central bank’s target range. At the end of 2023, the inflation rate stood at 1.7 %. The strength of the Swiss franc played a substantial role in the decline in inflation. As a consequence of this favourable development, the SNB was able to leave the key interest rate unchanged at 1.75 % in September and December.


As a small open economy, Liechtenstein also suffered as a result of the weak global economic situation. For quite some time, the Liechtenstein Institute’s economic index has been pointing to below average growth. Recent data showed, however, that the business downturn has slowed. Exports were significantly under the previous year’s level but here too, the trend stabilised towards the end of the year. In its annual report, the Financial Market Authority concluded that the financial services sector remains stable and the systemic risks are limited. Although the banking sector continues to be well capitalised, the decrease in core capital will hinder further growth aspirations. Liechtenstein’s employment market is still robust but companies are also complaining about the shortage of qualified personnel.


After abandoning its strict zero covid policy, China’s economy grew robustly by 2.3 % in the first quarter of 2023. However, the hope expressed by some economists that China could take on the role of the global economic locomotive did not materialise. This was attributable to several reasons. The trade dispute with the US and the weak global industrial activity adversely affected China’s export trade. The smoldering crisis on the real estate market also hampered growth.

Both the central bank and the government reacted to the weak economic development by easing monetary and fiscal policy, but there was no noticeable revival in business activity by the end of the year. Many experts believed that the scope of these stimulus measures was not sufficient to kick start the economy. Recently, tensions between China and the US have improved, but since the contentious geopolitical and trade policy issues could not be resolved, this brought no major positive impulse for Chinese exporters.

The weak demand led to a substantial fall in inflation. At the end of the year, the index of consumer prices was even below the previous year’s level.

Bond markets

The price development on the international bond markets in 2023 resembled a roller coaster ride. In expectation of an end to interest rate hikes, prices rose sharply in January. This was followed by a consolidation after the central banks signaled their intention of maintaining their restrictive course. Long-term yields climbed robustly in September and October, especially in the US, largely due to expectations of higher real interest rates. With the exception of Switzerland, the international bond markets were unable escape the yield increases in the US and the associated price falls. The Swiss market benefitted from the country’s low inflation rates, which had a moderating influence on interest expectations. Once the yield on 10-year US government bonds reached the 5 % mark at the end of October, nominal and real yields began to fall back again. The turnaround in US monetary policy in December gave a renewed boost to bond prices so that the 2023 investment year ended on a concillatory note.


In 2023, the Swiss franc gained by a trade weighted 8 % to become the strongest of the world’s key currencies. The pound sterling and the euro also developed positively, but with lower gains at 4.8 % and 4.2 % respectively. In contrast, the US dollar was not able to benefit from the strength of the US economy, which was adversely influenced by the prospect of falling interest rates towards the end of the year. The dollar fell by a trade weighted 1.3 %. The Japanese yen and the Norwegian krone lost 5.2 % and 3.7 % respectively as a result of the continuing expansive monetary policy and, in the case of Norway, due to weak oil prices. As regards the currencies of developing countries, the Mexican peso and the Brasilian real in particular developed favourably. In contrast, the Turkish lira, the Rusian rubel and the South African rand all suffered substantial price falls.

Stock markets

With the exception of the Swiss market, 2023 turned out to be an exceptionally good stock market year. On 14 December, the German DAX index climbed to more than 17ʼ000 points, an all-time high that it was not, however, able maintain up to the end of the year. In view of the stagnating economy, the good performance of the European markets was somewhat surprising. Stock prices probably benefitted from the imminent end of interest rate rises and from favourable valuations. In the US, technology stocks posted the biggest gains. The Nasdaq index climbed by around 44 %. The prospect of falling interest rates, the good performance of the US economy and high profit gains provided an especially strong boost for the prices of technology stocks.

In 2023, the Swiss market was unable to benefit from ist defensive character. At 7.1 %, the performance of the Swiss Market Index was significantly lower than the key indices in Europe and the US. As a result of its poor performance, the Swiss market is once again favourably valued.