Country Report Switzerland September 2009

Outlook for 2009-10

• The financial crisis and deep 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 a raising of capital ratio requirements. UBS is a concern for regulators because of the size and quality of its balance sheet.
• Fiscal consolidation will be reversed in 2009-10, with the general government 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 fight deflation.
• GDP is forecast to contract by 2.8% in 2009, with a return to growth of 0.7% in 2010. Unemployment is set to rise, and investment spending and exports will be particularly weak. Industrial production will decline heavily in 2009.

Monthly review

• The federal parliament has elected a new member of the Swiss government, Didier Burkhalter, a representative of the Radical Democratic Party (FDP), the same party as the departing minister, Pascal Couchepin.
• The federal president, Hans-Rudolf Merz, has damaged his reputation by attempting unilaterally to free two hostages from Libya without the consent of the Swiss government. The hostages have not been released yet.
• Some details released of an agreement between the Swiss authorities, the US Internal Revenue Service (IRS) and a large Swiss bank, UBS, show that Switzerland will transfer 4,450 account files to the US within a year.
• After the release of the accord and the IRS's agreement to drop its lawsuit against UBS, the Swiss government sold its UBS stake, at a profit of Swfr1.2bn (US$1.1bn). Further challenges to banking secrecy are, however, possible.
• Swiss GDP contracted by 0.3% quarter on quarter and 2.1% year on year in the second quarter of 2009, with all domestic demand components achieving a quarter-on-quarter growth. Inventory rundowns subtracted from growth.
• The financial sector recorded a sixth consecutive quarter of contraction, although the pace of decline is slowing.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;60;10
NAICS Code: 22;52;212