Country Report Switzerland December 2008

Outlook for 2009-10

• The financial crisis and expected severe recession will dominate the outlook period. A package of measures should stabilise the financial system, but further action is likely to be needed, beyond a modest fiscal stimulus.
• Switzerland's outsized financial sector, in relation to the size of the economy, exposes the country to great risk in the event of a systemic banking crisis.
• With the Swiss People's Party (SVP) likely to return to government following a ministerial resignation, the political scene should be calmer than in the past year, although this will depend on the SVP's attitude in government.
• Competition policy, social security reform, energy and EU relations are the government's main medium-term priorities, but action in these areas is likely to be derailed by the need to deal with the expected recession in 2009.
• The government's fiscal consolidation efforts will be halted by the expected recession. The budget balance is forecast to deteriorate substantially in 2009-10, as fiscal stabilisers come into play.
• Following cuts bringing official interest rates down to 1%, the Swiss National Bank (SNB, the central bank) is expected to lower rates to around 0.5% in 2009, where they should stay for the remainder of the forecast period.
• GDP is estimated to grow by 2% in 2008 and to see a contraction of 0.8% in 2009, with a return to weak growth of 0.6% in 2010.

Monthly review

• The SVP has nominated two of its leading personalities to the federal executive, to be chosen on December 10th.
• The SVP has chosen to campaign against the extension of the free movement of labour accord with the EU in a referendum in February 2009.
• The Federal Banking Commission has imposed a higher capital adequacy ratio on the two large Swiss banks, UBS and Credit Suisse, but they will have until 2013 to comply with the decree.
• Credit Suisse, until lately a better survivor of the banking crisis than UBS, has announced job losses and cost-cutting, amid losses in October-November.
• The passage of the 2009 budget seems likely, although the federal government has off-budget expenditure items that will exceed the budget surplus.
• Quarter-on-quarter GDP growth was zero in the third quarter of 2008, with investment contracting sharply. Exports maintained considerable strength.
• Consumer confidence is below its long-term average and falling. The Swiss Purchasing Manager's Index is in extremely weak territory.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52