Geopolitical developments and inflation are putting the global economy under pressure. Liechtenstein recorded average growth in the first quarter of 2022. The banking sector also remains on course for growth. These are the findings from the latest Economic Monitor report on the economy in Liechtenstein.
At the turn of the year, the global economy lost a degree of momentum, the Financial Market Authority (FMA) of Liechtenstein writes in its Economic Monitor Q2/2022. “The growth prospects are still relatively robust at the moment, although downside risks are on the rise”, the report explains. These developments also impact the economic growth of the Principality of Liechtenstein.
Specifically, the analysts at the FMA assume that the growth in Liechtenstein’s gross domestic product (GDP) has fallen to an average value in the first quarter of 2022 after recording a double-digit value in 2021. However, over the coming months, the analysts expect that supply bottlenecks and declining purchasing power as a result of high inflation will also begin to weigh on the Liechtenstein economy.
The Liechtenstein banking sector remains on course for growth. In this context, the analysts expect that rising interest rates will have a positive impact on profitability. At the same time, inflation and rising interest rates will also lead to higher credit risks. “Against the background of the solid capital and liquidity situation”, the Liechtenstein banking sector remains “well prepared for the challenges ahead”, the report states.
The analysts also believe that the domestic financial market is well positioned to deal with increasing risks in the real estate and mortgage markets. Due to comparatively moderate price increases, the overvaluation of real estate in Liechtenstein should be kept in check, according to the Economic Monitor. In addition, the country’s banks applied a rather high imputed interest rate of 4.5 percent in lending sustainability analyses.
