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KOF Director Jan-Egbert Sturm talks about Switzerland’s relationship with the European Union and analyses the opportunities and risks posed by the new negotiations for the bilateral agreements.

The KOF Business Situation Indicator for the Swiss private sector, which is calculated on the basis of the KOF Business Tendency Surveys, rose modestly in April (see chart G 7). The situation in the manufacturing sector eased, while it deteriorated slightly in the construction industry. Companies’ inflation forecasts are falling and private consumption could provide stimulus to the Swiss economy.

Once politicians enter office, they strongly prefer to stay there. Politicians in democracies may therefore be tempted to engage in wasteful spending during elections to convince voters of their economic merits. Such fiscal manipulation is traditionally linked to uninformed voter bases in less developed democracies. A recent study by KOF researchers, however, reveals that fiscal manipulation is more widespread and complex.

There is currently a lack of economic growth in the European Union. In addition, demographic change and unresolved structural problems are slowing economic activity. Once the European elections have been held in June, the new EU government will face major challenges. KOF’s international economic experts have analysed the situation in the three largest EU member states Germany, France and Italy.

The KOF Business Situation Indicator for the Swiss private sector fell again in March after initially not continuing its downward trend in the previous month (see chart G 8). Firms’ expectations about their business activities over the next six months are slightly more confident than they were in the previous month. Conditions in the Swiss economy remain challenging.

Cryptocurrency markets are rallying to new highs. Simultaneously, another type of cryptoasset is gaining relevance: stablecoins. Unlike Bitcoin & Co, stablecoins aim to maintain a steady value against a national currency. They facilitate trade on cryptoexchanges, underpin the DeFi ecosystem and promise to be a stable store of value. Unregulated, however, they come with significant risks. KOF economists Hugo van Buggenum, Hans Gersbach and Sebastian Zelzner discuss regulatory measures.