International perspectives

After economic activity increasingly began to falter towards the end of 2018, the long-lasting upwards trend on the stock markets came to an abrupt end. Investors had to accept losses. The banks must be prepared for persistently low interest rate levels in Europe.

Economic development in the strongest economies lost impetus in 2018. Political uncertainties, such as the trading disputes between the USA and Europe, as well as between the USA and China, caused a gloomy mood on the markets. The US government’s protectionist trade policy is having an adverse impact on corporate global value chains and, both in China and in the euro zone, has led to a slowdown in output. The markets were also burdened by uncertainty surrounding the Brexit negotiations, the fading Macron effect and the foreseeable end of Chancellor Merkel’s government in Germany. The geopolitical uncertainties are making the formulation of monetary policy more difficult. Following four interest rate hikes in 2018, the US Federal Reserve (the Fed) will be more cautious in 2019. The European Central Bank (ECB) only envisages an interest rate rise in the second half of the year. Consequently, money market interest rates in Switzerland will probably still be in the negative range at the end of 2019.


US President Donald Trump has provided the US economy with an additional boost thanks to an extensive tax reduction package. However, this effect will probably diminish during 2019. The US economy was, in fact, already losing impetus during the third quarter of 2018. After forecasting an economic growth rate of 2.5 per cent for 2019, the Fed revised its expectation to 2.3 per cent in December 2018. Inflation will probably also weaken somewhat in 2019. As a result of the fall in long-term interest rates in the USA, the yield curve has continued to level off. This could also be interpreted as an early warning signal of a possible recession. According to the current plans, US import tariffs will rise to their highest levels since the 1970s, which can also be seen as an indicator that the global economic picture is very likely to become even more overcast. Consequently, trading activities would be subdued.

Euro zone

The economic outlook for the euro zone is muted. Although growth should again pick up somewhat following an unexpectedly weak second half of 2018, the mood among consumers and producers has, nevertheless, deteriorated. The general uncertainty could dampen economic activity and thus the development of inflation. Bank economists, economic research institutes and international organisations have recently revised their 2019 forecasts downwards for Germany and the euro zone. For example, the Ifo Institute in Munich has revised its economic growth forecast to 1.1 per cent, whereas back in September experts were still reckoning with 1.9 per cent. The Austrian Institute for Economic Research (WIFO) reported similar findings. However, in spite of setbacks, the economic assessments of Austrian companies at the end of the year remained surprisingly confident. Starting from a relatively high level, the companies rated the economic situation as being somewhat worse; their expectations for 2019 were somewhat less positive.

Switzerland / Liechtenstein

The Swiss economy slowed down surprisingly strongly in the third quarter of 2018, with GDP declining by 0.2 per cent. According to the State Secretariat for Economic Affairs (SECO), moderate growth is to be expected in the coming quarters. The days of significantly above-average growth, however, are probably over. The situation in the Swiss financial services sector was not particularly encouraging. According to SECO, lower financial services exports and a challenging interest rate environment meant that the value added shrank in the third quarter by 1.1 per cent. In the meantime, according to the Economic Research Department of the Swiss Federal Institute of Technology in Zurich, the decline in the value-added share of the financial sector in Switzerland has probably come to an end. Since 2007, the share of value added attributable to the banks has almost halved. If there are no further setbacks (e.g. fines) in the financial services sector, profitability may rise again, according to the Economic Research Department.

In Liechtenstein, according to the “Economic Monitor Q4/2018” of the Liechtenstein Financial Market Supervisory Authority (FMA), there are no signs of a slowdown in the economy. Output has stabilised at a high level. The very positive economic situation is clearly discernible in the continually good employment figures. Employment increased by as much as 3.8 per cent in the first half year of 2018 compared to the same period in 2017, while exports of goods grew by 11 per cent.

Liechtenstein financial centre

Financial service providers in Liechtenstein benefitted in the first half of 2018 from the favourable economic environment. According to an economic report published in October by the Liechtenstein Department of Statistics, the revenue at six selected financial service providers climbed by 19 per cent in the first half of 2018 compared to the first half of 2017. Employment in the financial services sector, too, had risen by 4 per cent by the middle of 2018 compared to the corresponding period in the previous year. However, given the cloudy outlook for the global economic situation, a slowing of momentum can be expected. The Liechtenstein Bankers Association remains confident (according to an assessment published in the “Government Financial Planning 2019 to 2022”). Its member banks generally expanded strongly between 2016 and 2017. In retrospect, it can be seen that the focus and strategic realignment with regard to efficient cost management, client-oriented service and product offers and profitability paid off. New business growth areas were opened up, which promise positive developments in the future. Nevertheless, the Bankers Association also pointed out that, in a highly digitalised environment, negative interest rates, volatile financial markets, an increasing shortage of specialist staff, as well as the scope and complexity of regulatory requirements still present the Liechtenstein banks with core challenges. On the whole, however, the Bankers Association believes that, in the medium to long term, the banks’ growth strategies will have a positive effect on their annual business results, employment growth and the financial situation. The Liechtenstein Investment Fund Association basically foresees continued growth. Their assessment, also published in the “Government Financial Planning 2019 to 2022”) sounds positive. The Liechtenstein Investment Fund Association expects fund volume growth of 10 to 12 per cent for 2019 against the backdrop of a neutral stock market development. From 2020, it expects an increase of 4 to 7 per cent.