Mon. Jun 5th, 2023

June 21, 2021

Washington, DC: On June 11, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Switzerland.

Switzerland has navigated the pandemic well. COVID-19 has had major social and economic impacts, but an early, strong, and sustained health and economic policy response helped contain the contraction of activity. Also playing important roles were strong pre-pandemic fiscal, financial sector, and household buffers, robust exports (pharmaceuticals, chemicals, gold), low dependency on contact-facing sectors, a capable health system, and targeted containment. Coordinated efforts aimed at households and firms stemmed a loss of purchasing power and a rise of unemployment and bankruptcies.

Prior to the pandemic, Switzerland enjoyed robust growth and buffers. Growth was underpinned by employment gains from immigration and cross-border workers. Exports continue to be well-diversified among high value-added goods and services. Banks were well-capitalized and liquid, although credit growth was modest, and concentrated on mortgages. Public finances were strong, anchored by the debt-brake rule, federal budget surpluses, and low and declining public debt. Faced with low or negative inflation, the Swiss National Bank maintained a highly-negative policy interest rate; sustained current account surpluses, appreciation pressures, and periodic, safe-haven inflows contributed to accumulation of substantial foreign exchange reserves.

Recovery has commenced, but risks and uncertainty are high, dominated by the pandemic. The rebound should deepen, as vaccination proceeds, containment is eased, and domestic and global demand picks up. Growth is projected at 3.5 percent in 2021 and 2.8 percent in 2022. Fiscal support has been extended, and monetary policy remains accommodative. Risks stem from lagged COVID-19 impacts, search-for-yield behavior, real estate market imbalances, and an uneven global recovery. Post-pandemic challenges include limiting scarring—especially among vulnerable groups and workers, sustaining competitiveness, tackling pension system gaps, and addressing climate change.

Executive Board Assessment [2]

Directors commended the authorities for the strong, timely, and multi-pronged policy response to the COVID-19 pandemic. Noting the still high uncertainty, Directors stressed the need to maintain supportive policies until the recovery is on a firm path. They underscored the importance of rebalancing the policy mix and fostering green, digital, and inclusive growth.

Given Switzerland’s ample fiscal space, Directors welcomed the extension of targeted fiscal support to 2021 and the authorities’ readiness to deploy additional support, if needed. They recommended operational refinements to the fiscal rule to avoid headwinds to the recovery, and in this regard, welcomed the authorities’ consideration of a longer period to offset extraordinary expenditures. Directors noted that expeditious reforms of the withholding tax and stamp duty would help ease tax and administrative burdens and improve capital market functioning. They encouraged increased spending in support of green, digital investment and emission reduction plans.

Directors agreed that monetary policy should remain accommodative, with clear communication to help anchor inflation expectations, and mindful of potential risks to financial stability. They encouraged the authorities to review the monetary policy framework and tools regularly and adapt them to new challenges as needed. Directors took note of the external assessment, recognizing its complexity, given COVID-19 related uncertainties and data revisions. They concurred that foreign exchange interventions should be limited to mitigating excessive appreciation and deflationary pressures, provided trend appreciation is allowed.

Directors welcomed the resilience of the banking sector. They highlighted the need to monitor asset quality and risks closely, particularly those related to residential and commercial real estate. Directors recommended that the authorities review and expand the macroprudential toolkit to enhance its ability to react swiftly to financial stability risks. They looked forward to further progress in implementing the 2019 FSAP recommendations.

Directors agreed that structural reforms should focus on supporting post-COVID transformation and addressing important long-standing issues. In particular, they encouraged continued efforts to promote flexibility and mobility in the labor market, and ambitious reforms of the pension system to better align it with demographic and economic trends. Directors also called for decisive actions to achieve Switzerland’s climate change targets. Finally, some Directors noted the recent cessation in discussions on an institutional agreement with the European Union and encouraged the parties to engage constructively to avoid negative impacts over time.

Switzerland: Selected Economic Indicators, 2019–22
Population (2020): 8.55 million
Quota (current; millions SDRs / % of total): 5,771.1 / 1.21%
Key export markets: Euro area (44%), US (18%)
2019 2020 2021 2022
Proj. Proj.
Real GDP growth (%) 1.1 -3.0 3.5 2.8
Unemployment (%) 2.3 3.1 3.5 3.4
Inflation (period average, %) 0.4 -0.7 0.1 0.3
General government finances
Revenue (% GDP) 32.9 33.6 33.2 33.0
Expenditure (% GDP) 31.5 36.2 36.6 33.7
Fiscal balance (% GDP) 1.4 -2.6 -3.4 -0.7
Public debt (% GDP) 39.8 42.9 45.3 44.5
Monetary and credit
Broad money (% change) 0.8 6.5
Credit to the private sector (% change) 4.2 2.4
3-month Treasury bill interest rate (%) -0.8 -0.8
Balance of payments
Current account (% GDP) 6.7 3.8 6.7 7.5
Net FDI (% GDP) 4.8 8.5 3.6 5.7
Reserves (end-of-period, billions of US dollars) 854.8 1083.6
External debt (% GDP) 264.4 284.9
Exchange rates
REER (% change) 1.1 3.8
Sources: IMF’s Information Notice System; Swiss Institute for Business Cycle Research; Swiss National Bank; and IMF staff estimates.

[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:

Source – IMF:

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