ZURICH, April 24 - Swiss National Bank (SNB) Chairman Martin Schlegel said the outlook for the Swiss economy depends largely on the length of conflict-driven energy-price pressures, warning that an extended period of high energy costs could both lift inflation and weigh on growth.
In an interview published in the Swiss newspaper Neue Zuercher Zeitung, Schlegel said it was still too early to conclude whether the economy faces stagflation - a combination of weak or contracting growth alongside rising prices. "The key question is how long the conflict will last and whether energy prices remain high," he said.
Schlegel outlined two scenarios. If energy prices return to more normal levels quickly, he said any effect on inflation and growth would probably be temporary. By contrast, a longer-lasting shock would have markedly greater consequences for the Swiss economy.
He noted that central banks can generally look through temporary supply shocks. "At the moment it’s unclear if it’s only a temporary supply shock. Central banks can generally look through such shocks," Schlegel said. The situation becomes more challenging if so-called second-round effects take hold, he added: "It becomes more problematic if so-called second-round effects emerge, leading to broader-based price increases. Then central banks have to act."
Schlegel also stressed that Switzerland is starting from a relatively solid position. He pointed to a world economy performing better than expected and low Swiss inflation in the period before the Middle East conflict began. He cautioned, however, that higher oil prices should not be underestimated because of their indirect influence across many goods and services.
"Energy is indirectly contained in many goods," Schlegel said, citing links to food production, transport and packaging.
Separately, Schlegel defended tougher proposed capital rules for UBS that were unveiled on Wednesday, characterizing the measures as "not extreme." He sought to allay concerns that the new requirements could prompt UBS to shift operations abroad, saying capital rules are only one factor in banks' location decisions and expressing the assumption that UBS would continue to carry out a substantial portion of its business in Switzerland.
The comments underline the SNB's focus on the potential inflationary consequences of sustained energy-price pressures, while also engaging in the debate over banking regulation and the domestic footprint of a major Swiss lender.