Country Report Switzerland November 2008

Summary

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.
An SVP splinter party, the Conservative Democratic Party (BDP), will be over-represented in government, with one seat, while the SVP will be under-represented. The government will retain SP, CVP and FDP representatives.
A package of measures should stabilise the financial system at a modest public cost, but it is likely that further action will be needed because of the upcoming recession.
Competition policy, social security reform, energy and EU relations are the government's main medium-term priorities, but action in these areas could be derailed by the need to deal with the expected recession in 2009.
The government is forecast to continue on its path of fiscal consolidation, although the budget balance is likely to fall towards balance, or even into deficit.
Following various 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 1.7% in 2008 and to see a contraction of 0.3% in 2009, with a recovery to growth of 0.5% in 2010. External demand will be especially weak, but investment and private consumption will also fall back.

The minister of defence, Samuel Schmid, has resigned from government (with effect from end-2008), having suffered criticism for his handling of the appointment of the army chief, but also in conjunction with a health issue.
The SVP wants to return to government by securing his seat, and the other main parties recognise its claim, but are unlikely to consent to the re-election of Christoph Blocher, who was de-selected as minister in December 2007.
The government and the SNB unveiled a package worth US$60bn to support an ailing Swiss bank, UBS, as well as other measures to stabilise the banking system.
The SNB is to create an entity that will buy up and manage UBS's problematic sub-prime-related securities. UBS will receive a public capital injection, and Credit Suisse will also be obliged to raise its capital adequacy level further.
Swiss economic indicators have not deteriorated as sharply as those for its neighbours, but nonetheless point to a considerable slowdown in the next half year. Falling inflation remains the only bright spot.

This report covers the following industry codes:
SIC Code: 47;49;60
NAICS Code: 48;22;52