Economic environment

At the start of the year, the traffic lights for the global ­economy were all green. Yet by the end of January, the optimistic outlook was put to the test, as interest rate fears gripped financial markets. These fears were prompted by a confident forecast from the US central bank. Investors interpreted that outlook to mean that benchmark interest rates would continue to rise. In February equity markets recorded significant price declines. As a general rule, when bearish sentiment is initially felt in the financial markets, it is only a matter of time before confidence fades at the company level. In the event, key leading economic indicators ultimately trended downward. 

Over the course of the year, two other burdensome factors in the euro zone created a noticeable drag on the economy. On the one hand, a shortage of vehicle registrations based on the new Worldwide Harmonized Light-Duty ­Vehicles Test Procedure (WLTP) emissions standard resulted in sputtering vehicle output and ultimately a decline in industrial production. On the other, the dry ­summer brought inland navigation to a standstill, thus disrupting key supply chains. 

Switzerland was also affected both directly and indirectly. Swiss GDP contracted in the third quarter. At the end of 2018, the business climate was also unsettled by the on-­going Brexit discussions, trade wars and fears of a debt crisis in Italy. 

On the other side of the planet, higher tariffs imposed by the United States weighed on economic growth, as China faced slowing growth in the second half of the year. The US economy, however, benefited from tax cuts and favourable labour market trends. The Fed was therefore able to stay the course as regards its modest monetary tightening policy. Overall, four interest rate hikes of 25 basis points each were anticipated. Meanwhile, the ECB kept its benchmark rates unchanged but halted its net purchases of ­securities at year-end 2018. The SNB made no changes to its monetary policy.

For equity markets, the initial optimistic outlook was ­premature. Investors had become accustomed to ­double-digit returns in 2017, and economic conditions also appeared favourable, as the United States enacted substantial tax cuts and global economic growth was once again in sync. But dark clouds soon appeared on an almost clear equity horizon, which weighed on both the economy and sentiment. The drop in equity prices at end-January 2018 turned out to be only the first stress test for investors. 

Worsening international trade disputes clouded the ­economic environment for nearly all export-intensive ­countries. Similarly, rising interest rates in the United States and the strong US dollar also weighed increasingly on emerging countries. Europe, which had already come under ­considerable pressure from its own structural ­problems such as Brexit and the diesel scandal, then ­experienced further deterioration in new orders. The ­unusually steep drop in share prices in December 2018 could thus be seen as a market-cleansing correction; now the economic ­challenges need to be solved in 2019.