“We are at the end, rather than the beginning, of a banking crisis”

KOF’s spring forecast predicted that Swiss gross domestic product (GDP) would increase by 0.8 per cent this year and 2.1 per cent in 2024 – but this calculation was made before UBS acquired Credit Suisse. Does this forecast now need to be updated?
No. Assuming that UBS’s takeover of Credit Suisse is successful and does not cause any major disruption in the short term, it will not have a large impact on our forecast for the Swiss economy. If Credit Suisse had not been rescued, there could have been a domino effect, triggering a new financial crisis. But the situation now seems to have stabilised – fortunately. Currently we are at the end, rather than the beginning, of a banking crisis.

Can you quantify this assessment?
If we assume that, by 2027, about 20 per cent of the new UBS’s total assets and value added are lost owing to the upcoming restructuring, this will cost an estimated 0.05 percentage points of GDP growth per year. This means that if we had grown by 1 per cent without the takeover, we would now grow by 0.95 per cent.

Mergers and acquisitions usually cost jobs. Is this takeover expected to have real economic effects on the labour market?
Employment growth would also shrink to an extent similar to GDP under the given assumptions. But the Swiss labour market is in good shape. There are therefore no concerns that the workers affected by layoffs will not find new jobs. This would also further relativise the loss of value added.

Aside from just the numbers, does the failure of Credit Suisse damage Switzerland’s reputation as a financial centre?
Yet another major Swiss bank has run into difficulties within just two decades. This tarnishes Switzerland’s image as a financial centre and business location and as a country which is actually known as a haven of stability. However, the rescue of Credit Suisse also shows that Switzerland is capable of taking the appropriate action. A pragmatic solution that offers sound prospects was quickly found. Had there been any hesitation, the consequences would have been much worse.

Does this takeover offer any benefits?
The new UBS is very large in terms of Switzerland’s economic strength. Globally, however, there are banks – especially in the US and China – that are much larger in terms of market capitalisation. In this respect, UBS has perhaps become slightly more competitive globally.

Why has the Swiss franc not weakened following the turbulence in the financial sector?
Financial market participants know that it is not worth speculating against the franc because the Swiss National Bank would resist such attempts. This fact alone protects the franc from devaluation.

Central banks in the United States, the euro area and Switzerland have recently continued to raise their interest rates despite the banking crisis. Was that the right thing to do?
Inflation remains high throughout the Western world, so interest rates need to be raised further. In order to maintain financial stability, central banks must keep an eye on the possibility of banking crises. As long as these are merely isolated cases, they should be treated as such and monetary policy itself should be used to fight inflation. It is therefore right for central banks to continue to pursue their policy of interest rate hikes.