Country Report Switzerland June 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 3.6% in 2009, with a further contraction of 0.6% in 2010. Unemployment is set to rise, and investment spending and net exports will be particularly weak. Industrial production will decline heavily.

Monthly review

• The renegotiation of Switzerland's bilateral taxation agreements to incorporate changes to banking secrecy legislation remains a key issue. Three small ones have been agreed, but important ones with the US and EU are outstanding.
• Consumer organisations and health insurers have threatened a referendum if the government is not sufficiently tough in reducing pharmaceutical prices.
• The government is holding off negotiations on a third fiscal stimulus package for 2010. A target area for a new stimulus package could be the labour market.
• The government has published three tax relief proposals, which it hopes will become active in time to support an economic recovery in 2010.
• Swiss GDP declined by 0.8% quarter on quarter and 1.6% year on year (seasonally adjusted) in the first quarter of 2009, making the economy one of the best-performing in the OECD.
• Net exports and the financial sectors were the main contributors to the decline in GDP, whereas private and public consumption were steady.
• Employment continued to rise mildly, by 0.1% (seasonally adjusted) in the first quarter of 2009.

Source: Country Report

This report covers the following industry codes:
SIC Code: 2834;60
NAICS Code: 3254;52