Country Report Switzerland July 2009

Outlook for 2009-10

• The financial crisis and severe recession will dominate the forecast period. The government has stabilised the financial system for now, but its fiscal stimulus is modest compared with the magnitude of the slowdown.
• Switzerland's large and economically strategic financial sector faces structural changes and is expected to shrink in terms of size and contribution to growth.
• With the Swiss People's Party (SVP) back in government, the political scene should be more stable than in 2008, and this will improve the prospects of finding broad consensus for dealing with the recession.
• Financial services regulation is set to see significant changes, including mooted powers to regulate banks' size and raise capital ratio requirements. UBS is a key worry for regulators over both its balance sheet and US law suits.
• Fiscal consolidation will be reversed in 2009-10, with the budget balance falling into deficit, as fiscal stabilisers come into play.
• With interest rates at 0.25%, the Swiss National Bank (the central bank), will continue to use unorthodox monetary policy measures to prevent deflation.
• GDP is forecast to contract by 3.5% in 2009, with a further contraction of 0.3% in 2010. Unemployment is set to rise, and investment spending and net exports will be particularly weak. Industrial production will decline heavily.

Monthly review

• A long-running court case against three Swiss nationals is testing the boundaries between government, parliament and judiciary powers.
• A Swiss federal councillor and former federal president, Pascal Couchepin, has announced his resignation for end-October 2009.
• The renegotiation of double-taxation agreements??