Although activity increased by 1¾ per cent in 2004, the recovery remains fragile and dependent on developments in the euro area. The recovery should continue in 2005 at a more moderate rate of some 1¼ per cent and then gradually gather pace, with GDP growth reaching 2% in 2006 thanks to a more robust external environment. These developments will probably be accompanied by a decline in unemployment as of 2006, but without generating inflationary pressures.

In the absence of inflationary pressures, the continuing easy stance of the Swiss National Bank’s monetary policy would seem appropriate to underpin the recovery. Continuing efforts are needed to contain public spending and so reign in its trend rise and pursue fiscal consolidation. Combined with the strengthening of competition, this policy will stimulate potential growth.