The global downturn in 2001, notably stagnating demand from the euro zone, severely affected the Swiss economy and also impacted on the labour market. An additional difficulty was the appreciation of the Swiss franc vis-à-vis the euro. Given the difficult economic environment, this was undesirable also from the point of view of the National Bank. It undermined the Bank's efforts to ease monetary policy and created the risk of a deflationary trend. Consequently, the National Bank distinctly reduced the target range for the three-month Libor in the second half-year. Monetary policy continued to be oriented to the goal of maintaining monetary stability.

The prospects for economic recovery in the current year are favourable. By the end of 2002, the economy should again grow by 2%. To date, the National Bank sees no reason for any doubts with respect to this scenario. Admittedly though, there are risks. Thus it may take some time before investment activity recovers. Some, however, also see a potential danger in the development of the exchange rate. Important factors such as low interest rates in Switzerland and a calmer political situation basically indicate a strengthening of the euro against the Swiss franc. In the short term, however, numerous determinants of the exchange rate cannot be observed. The National Bank will continue to keep a watchful eye on the exchange rate development and react, if necessary. A substantial relaxation of the monetary reins in the second half-year eased the exchange rate situation. Due to low interest rates, stable prices and the renewed flexibility in numerous sectors, the Swiss economy stands a good chance of deriving full benefit from the anticipated upswing of the international economy.