Country Report Switzerland January 2009

Outlook for 2009-10

• The financial crisis and expected severe recession will dominate the forecast period. A package of measures should stabilise the financial system, but its modest level is not expected to restrain the economic slowdown significantly.
• 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) back in government since December, the political scene should be calmer than in the past year, and this will be positive for the prospects of finding broad consensus for dealing with the recession.
• 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 delayed by the need to deal with the expected recession in 2009.
• Fiscal consolidation will be halted by the expected recession, with the budget balance falling into deficit in 2009-10, as fiscal stabilisers come into play.
• With interest rates at 0.5%, the Swiss National Bank (SNB, the central bank) is likely to be forced to use more unorthodox monetary policy measures.
• GDP is forecast to contract by 1.8% in 2009, with a return to only weak growth of 0.3% in 2010. Unemployment is set to rise steeply, and investment spending will be particularly weak. Industrial production will see severe declines.

Monthly review

• The SVP has returned to government with the election of Ueli Maurer as minister of defence in December 2008. Mr Maurer only narrowly secured electiona sign of tepid enthusiasm from the other parties in parliament.
• Switzerland is gearing up for a referendum on February 8th on the renewal of the free movement of labour accord with the EU. The high stakesas rejection will terminate other bilateral EU agreementsare expected to secure approval.
• The SNB cut official interest rates to 0.5% in mid-December, exhausting most of its scope for monetary policy loosening.
• The government has explained the details of its fiscal stimulus measures, but these are relatively modest, at 0.3% of GDP, particularly compared with other packages in the EU. The measures focus on spending to save or secure jobs.
• The government has presented proposals for allowing parallel imports from the EU, aiming to lower prices, and for corporate tax reforms, which are also aimed at settling the EU-Swiss dispute over cantonal tax regimes.
• The Purchasing Managers' Index for December 2008 has remained at extreme lows, following a large decline in November, suggesting a steep decline in fourth-quarter GDP. Falling inflation remains the only bright spot.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;60;39
NAICS Code: 22;52;31

This report covers the following industry codes:
SIC Code: 49;60;39
NAICS Code: 22;52;31