ZURICH, April 24 (Reuters) - Swiss National Bank Chairman Martin Schlegel said the outlook for Switzerland's economy hinges on how long conflict-driven energy price pressures persist, warning that
SNB's Schlegel: Prolonged Energy Shock May Fuel Swiss Inflation, Hamper Growth
Schlegel Warns on Energy Prices and Swiss Economic Outlook
ZURICH, April 24 (Reuters) - Swiss National Bank Chairman Martin Schlegel said the outlook for Switzerland's economy hinges on how long conflict-driven energy price pressures persist, warning that prolonged high prices could fuel inflation and weigh on growth.
Potential Risks to Swiss Economy
In an interview published in Friday's edition of Swiss newspaper Neue Zuercher Zeitung, Schlegel said it was too early to say if there was a risk of stagflation, a period of sluggish or contracting growth where prices keep rising.
"The key question is how long the conflict will last and whether energy prices remain high," Schlegel said.
Short-term vs. Long-term Energy Shocks
If prices normalize quickly, the impact on inflation and growth would likely be temporary, but a longer-lasting shock would have significantly greater effects, he said.
"At the moment it's unclear if it's only a temporary supply shock. Central banks can generally look through such shocks."
Second-round Effects and Central Bank Response
"It becomes more problematic if so-called second-round effects emerge, leading to broader-based price increases. Then central banks have to act."
Switzerland's Position and Broader Impacts
Still, Schlegel said Switzerland was in a relatively solid position, with the world economy performing better than expected and Swiss inflation low before the Middle East conflict began.
Although energy makes up a smaller proportion of Swiss household spending than in many countries, Schlegel warned that policymakers should not underestimate the wider effects of higher oil prices.
"Energy is indirectly contained in many goods," he said, pointing to food production, transport and packaging.
UBS Capital Rules and Banking Sector Stability
Separately, Schlegel defended tougher proposed capital rules for UBS unveiled on Wednesday, saying they were "not extreme."
He played down concerns the measures could force UBS to move abroad, saying capital rules were only one factor in location decisions, and that he assumed the bank would still conduct a substantial part of its business in Switzerland.
(Reporting by John RevillEditing by Dave Graham)
