Switzerland has been hit harder than the majority of other OECD countries by the downturn in international activity. Output is likely to have declined by ½ per cent in 2003, but could pick up  gradually and grow by 1¼ per cent in 2004 as a result of the improved external environment and the fall in the franc. Unemployment is unlikely to recede before the second half of 2004, while inflation  could dip further and lead to virtual price stagnation. Monetary conditions should remain easy until the recovery is firmly established. In the absence of room for interest rate cuts, the Swiss National Bank should stand ready to intervene in the foreign exchange market to head off any unwanted appreciation of the franc to minimise the risk of deflation. Any further relaxation of fiscal policy would, on the other hand, be neither desirable nor effective as a way of stimulating activity. For growth to pick up on a sustainable basis, the scope and pace of structural reforms in the product markets need to be stepped up...