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The coronavirus pandemic has clearly left its mark on Switzerland’s innovation landscape. More than a quarter of the firms surveyed by KOF have had to adapt their innovation processes significantly or even very significantly owing to the COVID-19 crisis. SMEs, start-ups and multinational corporations have been hit particularly hard. Just under half of these companies report that COVID-19 has meant a reduction in R&D and innovation investment and a decline in innovation collaborations.

The number of company bankruptcies in Switzerland continued to rise in March and, after a two-year low, has exceeded the pre-crisis levels of 2019 for the first time. Although this increase is broadly based across sectors and regions, a wave of bankruptcies remains unlikely. The boom in new business start-ups has flatlined recently.

As far as Swiss companies are concerned, the positive impact of their recovery from the pandemic is outweighing the adverse effects of the war in Ukraine. The KOF Business Situation Indicator rose in April to its highest level since recovering from the financial crisis in 2010/11.

At present, the Swiss National Bank (SNB) is having to contend with above-average inflation, the economic recovery from the COVID-19 pandemic, and the considerable uncertainty arising from the war in Ukraine. In March, therefore, KOF and the Neue Zürcher Zeitung (NZZ) newspaper surveyed economists on their assessments of inflation and monetary policy in Switzerland.

A special survey conducted by KOF examines the wage expectations of Swiss companies from today until one year from now. A majority of firms in almost all sectors expect to see wage growth of 1 per cent or more.

Prices in the euro area and especially in the United States have risen sharply recently. Inflation momentum has also picked up in Switzerland. However, KOF expects the upward trend in prices in Switzerland to weaken towards the end of the year.

Russia’s invasion of Ukraine has lowered Swiss companies’ expected wage growth and, at the same time, raised their inflation forecasts. Small and medium-sized enterprises in particular, as well as companies in the manufacturing sector, expect to see higher prices in the long run. In purely arithmetical terms, the information provided by these firms translates into negative real wage forecasts, which are even more negative than they were before the war in Ukraine.

The continuing rise in prices is forcing the central banks in the United States and Europe to reconsider their highly expansionary monetary policies. The Swiss National Bank will probably only reverse its policy stance once central bankers in the euro area have implemented their first interest-rate hike.

The business fortunes of companies in Switzerland deteriorated significantly in March, with the financial and insurance services sectors primarily responsible for the less encouraging situation (see Chart G 9). The changes in the other sectors of the economy in March were comparatively small.