Economic environment

In 2022, the financial markets were shaped by the economic and political issues of the year, which included the war in Ukraine and inflation.

In 2022, the Russian war of aggression on Ukraine dominated the news. At the beginning of the year, there was still hope that the supply chain problems would be resolved and that the desired catch-up effects after the Covid-19 pandemic would come to pass. However, the beginning of the war on 24 February marked a turning point, not only politically but also economically. Gas and oil prices shot up, and it also became clear that Ukraine is an integral component of European supply chains, with the European automotive industry in particular being negatively affected by supply chain problems. But to everyone’s astonishment, the economic situation eased during the spring months despite the war. Energy prices fell.

When Russia throttled the supply of natural gas and eventually stopped supplying natural gas via the important North Stream 1 pipeline in the run-up to the regular maintenance work that takes place in the summer months, it was clear that Russia was using the halted supply of energy to put Europe under pressure. This caused forward prices for natural gas to rise to levels never seen before. There was a justified concern that energy rationing might be coming. All of this meant that inflation rates in the Eurozone exceeded 10 per cent and key leading economic indicators plummeted. Switzerland was able to escape inflationary pressures due to the significant appreciation of the Swiss franc and a higher share of administrative prices in the basket of goods considered in inflation calculations.

Central banks on both sides of the Atlantic rushed to keep pace with rising inflation, with the US Federal Reserve (Fed) launching into monetary policy tightening that was more aggressive than anything seen in the past 30 years. However, the European Central Bank and the Swiss National Bank also unexpectedly raised key short-term interest rates by a significant amount, although both banks fell far short of the Fed’s guidance. This not only ended the phase of negative interest rates but also raised long-term interest rates to a level not seen in more than ten years. At the same time, both the Swiss franc and the US dollar were among the big winners on the foreign exchange markets, with both currencies benefiting from their reputation as safe havens. The US dollar increased in value further thanks to the aggressive action of the Fed.

At the beginning of the most recent financial year, signs pointed to an easing of the economic situation. The stimulus package put together in Europe began to exhibit positive impacts, with loosening of the public health restrictions also leading to improvements in international transport. Regional retail gradually returned to normal business operations, and the US economy continued to experience strong growth. 

This trend was abruptly interrupted in the first quarter. The outbreak of war in Ukraine sent Europe into crisis mode, with sanctions on Russian energy exports fuelling inflation that was already on the rise. A temporary energy shortage and escalating prices for gas and electricity also led to renewed deterioration in production and supply chains. In the United States, the Fed was already forced to institute a sharp rise in interest rates in March. On the capital markets, stock markets collapsed worldwide, with the bond market also experiencing historic turbulence.

Technology stocks were already entering a consolidation phase, but they were hit particularly hard by the interest rate hikes. Investors’ increasingly defensive stance led to the US and emerging markets underperforming the global equity market in 2022. Japan and Europe exhibited relative strength during the year. This is due to a lower share of technology companies as well as comprehensive government investment programmes, which have been additionally extended to include the transformation of the energy sector, particularly in Europe. Although initial signs of a less dynamic inflation trend could be observed, high energy costs did not begin to have an elevated impact on private households and energy-intensive companies until the fourth quarter. This caused market participants to look to the new stock market year with a certain degree of scepticism.