by George Dorgan
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Our analysis of the forecasts of economic data for 2015 shows that the Swiss banks were too optimistic for most data. US growth, the oil price, inflation and interest rates were far lower in 2015 than they expected. The forecast errors for stock indices and unemployment, however, were smaller.
In December 2014, the Neue Zürcher Zeitung (NZZ) published the forecasts of the leading Swiss banks for the year 2015. UBS, Credit Suisse, Julius Bär, die ZKB, Raiffeisen, Pictet und J. Safra Sarasin participated.
We would like to know where the banks were correct and where they got wrong.
Forecasts of Swiss banks and reality in 2015
Forex
As for the EUR/CHF, all the banks were wrong. They saw the EUR/CHF rise from 1.20 to around 1.23. But the pair ended the year at 1.0881.
USD/CHF: The banks were more successful with the dollar. They thought that the dollar remained around parity with the franc. It was 0.98 in December 2014 and finished the year 2015 at 1.0026.
GDP
The banks expected the Swiss economy to perform better than the euro zone, +1.7% versus 1%. That a stronger economy often leads a stronger currency, got ignored. They overestimated growth in the United States with 3.1% versus the real value of around 2%. But they underestimated the growth in the euro zone, that in the third quarter was at 1.6%. By Q3/2015, the euro zone growth rate was stronger than the Swiss one.
Stock Indices
Banks were over-optimistic for stock indices. They saw the SMI around 9500, while the Swiss index got hit by the end of the euro peg. The SMI ended the year at 8818, a minus of 1.4%. After the initial shock to 7900 points, the index recovered to 9300 points in March.
The estimates for the DAX were correct with an end value of 10700, while the opinion about the S&P500 was too optimistic. The S&P 500 ended the year at 2044, while the Swiss banks forecasted it at 2150.
Unemployment Rate and Purchasing Power
The Swiss unemployment rate was at 3.4% in November 2015 and therewith higher than the expected 3.1%. On the contrary, the banks thought that U.S unemployment rate were higher. The U.S. unemployment rate is 5%, while their guess was 5.3%. Weaker oil prices translated in higher purchasing power, more demand and, in particular, more jobs.
The Swiss, however, concentrate on exports. Their part of consumption in the GDP is 66% versus 80% for the U.S. Similarly to the 1970s, when the franc strongly appreciated, Swiss firms were initially reluctant and stopped hiring. The positive effect of a stronger franc on purchasing power and consumption growth usually takes more time.
Commodities
The biggest gap was in the commodities area. Banks expected WTI and Brent between 65 and 70$, while both benchmarks ended the year around 37$.
Inflation
Already for years, banks have got the forecast for inflation wrong. They expected euro zone inflation at 0.7%, while the reality is 0.15%. For the U.S., they saw the CPI at 1.5%, the reality is 0.5%. This difference cannot only be explained with the lower oil price.
Interest rates
Banks not only overestimated growth, commodity prices and inflation, but also interest rates. They expected the 10 year yield of treasuries at 2.7%, the reality is 2.2%. For German Bunds, they missed the reality of 0.6% with their forecast of 1%. For Switzerland they got wrong even more: They judged that Swiss rates were at 0.6% but the 10 years Eidgenossen ended 2015 at minus 0.07%.
Our forecast
The main take-aways of my presentation at the CFA society in September 2014, were:
- Don’t fear inflation
- The SNB will stop the franc only temporarily.
