Country Report Switzerland May 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 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.
• 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 tackle the economic slowdown in 2009-10.
• 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 (SNB, the central bank) will continue to use unorthodox monetary policy measures to support prices.
• GDP is forecast to contract by 4% 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

• Switzerland has placed high priority on the renegotiation of its double-taxation accords with key partners, in order to smooth domestic and international relations, which are tense over the matter.
• Switzerland and the EU are wrangling over whether treaties will be renegotiated with individual member states or the European Commission as a representative partner. Negotiations with the US have already begun.
• Curbing continually rising healthcare costs and health insurance premiums is the main domestic policy priority, but finding political agreement on methods to do so is proving difficult.
• UBS, the largest Swiss bank and hard-hit by the financial crisis, continued to lose money in the first quarter of 2009, and a recovery is not yet in sight.
• The federal budget achieved a sizeable ordinary surplus in 2008 of Swfr7.3bn (US$6.6bn), but this was outweighed by high one-off expenditure items, such as a capital injection for UBS, infrastructure payments and cantonal transfers.
• Capacity utilisation has fallen sharply amid steep declines in industrial production and exports. Manufacturing and purchasing surveys indicate that the worst of the declines could be over, however.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;70;1
NAICS Code: 52;72;11