Crisis and economy
“Geopolitical uncertainties favor the franc”
Geopolitical tensions in the Middle East should not have major repercussions on the economy. Unless the Strait of Ormuz ended up being blocked.
Samy Chaar, chief economist of the Geneva private bank Lombard Odier, believes that the business situation and the financial solidity of households are better than fifteen years ago during the serious financial crisis.
LMD
- Economist Samy Chaar provides for an economic slowdown without imminent recession.
- Swiss companies resist despite a deterioration in international trade.
- The scholarships demonstrate unexpected robustness in the face of geopolitical tensions.
- The Swiss franc maintains its strength thanks to favorable macroeconomic indicators and its status of refuge value.
No earthquake in the financial markets. At least for the moment. The conflict Between Iran and Israel did not cause krach and the price of oil has not exploded. The European and American scholarships even flirt with their absolute summits. The rest? The point with Samy Chaar, chief economist of Lombard Odier in Geneva.
Can the global economy avoid a recession with the Trump trade war and the Iranian crisis? Are you worried?
I am not worried, while remaining vigilant. An economic slowdown is inevitable, but an entry into preventable recession.
Really?
The level of uncertainty has a notch. But I do not believe that geopolitical tensions will have a major impact on the economy, especially what is happening in the Middle East. It is a bit like war in Ukraine, very serious at the local level, but without lasting effect on the economic situation. Iran should block the Strait of Ormuz (Editor’s note: by which 20% of world oil transits) so that the situation becomes critical.
Is Trump’s trade war is not a threat to the global economy?
The uncertainties have Highly decreased since April. The gigantic taxes announced by Trump would have brought the recession, but they were largely revised downwards. Companies have been reassured. They did not have to consider drastically reducing their costs. In other words, Trump’s trade war has forced firms to hire less, but not to fire.
Are there specific risks for the Swiss economy?
No. Of course, trade flows have deteriorated, which weighs on Swiss export firms (watchmaking, machine industry, etc.). But consumption does not contract, supported in particular by very low inflation and wages that are progressing slightly. It is rather reassuring.
No risk of recession?
Not at this stage. I note that the situation in the private sector, be it the balance sheets or the accounts of companies or the financial solidity of households, is better than fifteen years ago during the major financial crisis. This is particularly marked in the United States, but also in Spain, Italy or Greece, on the European periphery. In other words, the excesses of the real estate bubble have been digested and the bank assessments cleaned.
France is in difficulty, with a motion of socialist censorship against the Bayrou government on pensions. Spain says it does not have money to increase its armament expenses, as required by NATO. Is a new crisis in sovereign debt to fear in Europe?
I am convinced that no. We underestimate the solidity of the private Spanish and French sectors. The current balance of these countries is balanced (Editor’s note: difference between the revenues and the expenses of a state with the rest of the world). The private balance (companies, households, banks, etc.) is in surplus, which makes it possible to finance public debt. In short, these countries do not need foreigners to finance their debt.
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But is this debt not free?
In Europe, interest rates have dropped a lot, the financing of the debt is therefore ensured. I would go further. There is no excuse for not making the necessary investments to ensure the economic and geopolitical stability of the Old Continent. We must invest in defense, the energy sector, infrastructure (trains, ports, roads, etc.) and technology.
The scholarships are again close to their historic heights. Are you surprised?
Not really. The financial markets tell us that the private sector is well (the profits of companies are rather satisfactory) and interest rates have fallen compared to recent years. All of this has made the actions attractive, and this should continue.
The franc which has strengthened by more than 10% This year against the dollar (0.8050) and remains very high against the Euro (0.9350) will he remain strong?
Yes, because the major macroeconomic indicators (balance of payments, inflation, interest rate, growth) are generally promising for the Swiss franc. Outside these fundamentals, geopolitical uncertainties are also an argument speaking in favor of our currency, defensive by nature.
The independence of the central bank is questioned by Trump in the United States. What are the risks, if a new president of the Fed considered too close to Trump, took the lead?
There will be no appointment to this effect before May 2026, the end date of Mandat de Jerome Powell. However, if the next FED governor were to be politicized and did not convince the markets in his mission to support American employment, while fighting inflation, this would pose a problem. The dollar would then plunge more and long-term interest rates would climb to the United States. Because international investors would require a bonus to have American debt.
Will oil stay at its current level, at a relatively low level (65 dollars per barrel)?
The global supply of oil remains high, while energy demand is increasingly diversifying towards other energy sources. The Saudis who had reduced their production in recent years want to put more on the market. And the United States today has a phenomenal extraction capacity! Europe, Japanese and Chinese build nuclear power plants and favor renewable energies (wind, photovoltaic, etc.). We are in a world where fossil energy does not really seem to be missing.
A sharp increase in the price of oil would not derail the world economy?
If the barrel of crude was developing permanently above the 100 dollars mark, this would be very difficult to digest in terms of costs for businesses and households. And the risks of recession would increase.
Can China and Asia decouple their economies from the United States, and have independent growth in the West?
No, because Asia remains a production unit. Indians, Koreans, Japanese and Chinese remain the world factory. Chinese consumers, entangled in a real estate crisis, do not have sufficient domestic growth to take over. Just like the Indians, moreover, whose purchasing power remains low. Clearly, the American consumer remains the engine of the world economy.
And not European households?
Europe is number two in terms of market. But the latter is aging, and people here prefer savings to expenditure.
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