SWITZERLAND

On track towards economic normalcy by 2022

AA1

LOW RISK for enterprise

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

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GDP

USD703,1bn (World ranking 20, World Bank 2019)

Population

8,57mn (World ranking 99, World Bank 2019)

Form of state

Confederation (but similar to a federal republic)

Head of government

Guy Parmelin (President of the Swiss Confederation)

Next elections

October 2023, legislative

Competitive high-income economy
Sound political institutions
Specialization in high-quality exports for which demand is relatively insensitive to exchange rate moves
Healthy public finances
Strong external position

Overvalued CHF due to safe haven role
Strong dependence on financial and export sectors
Rising labor costs and stagnant productivity growth
Financial sector’s exposure to real estate lending (around 85% of domestic assets are concentrated in mortgages)
Unfavorable demographics

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Return to pre-crisis GDP levels by end-2021

After the crisis year 2020, in which the Swiss economy recorded the strongest GDP decline since 1975 at -3%, 2021 is likely to be a year of economic recovery. However, the situation will deteriorate significantly in the short term before a sustainable recovery starts to unfold. The second wave of the pandemic has already been weighing on the Swiss economy since late 2020. As a result of the extension and tightening of Covid-19 containment measures at the turn of the year, including the closure of stores and restaurants, 2021 is likely to start with a double-dip recession for the Swiss economy. An economic resurrection is not expected until Easter at the earliest. By then progress on the vaccination front, together with warmer temperatures, should allow for a gradual easing of measures. From the second quarter onward, a strong economic recovery should thus set in, thanks to marked positive base and catch-up effects. The vaccination of the at-risk population groups is expected to be completed by mid-year, setting the stage for a strong consumption boom in the second half of the year. Swiss exports should also feel growing tailwind, thanks to the increasingly synchronous global economic upswing. The dichotomy in the economy - stable industry vs. battered services including hospitality and retail - should still remain with us for some time. A return to economic normality is only on the cards from 2022 onwards. The Swiss economy should return to its pre-crisis level at the turn of the year 2021/22. However, the crisis will leave its mark beyond the short-term, with unemployment and insolvencies still elevated in 2022. Overall, the Swiss economy is expected to grow by +2.6% in 2021 and +3.2% in 2022.

Dovish monetary policy stance to be maintained

We expect the Swiss National Bank to maintain its supportive policy stance and to stress its readiness to counter any unwarranted strengthening in the CHF in the context of the very weak inflation outlook. After -0.7% in 2020, inflation should only rise gradually, reaching +0.2% in 2021 and +0.4% in 2022. Further rate cuts – the key interest rate hovers at a record low of -0.75% - are unlikely given potential negative implications for banks.

Fiscal policy to the rescue?

When it comes to cushioning the Covid-19-related blow to the economy, fiscal policy has to be in the driving seat. Following its initial response to the economic shock, the Swiss government has been reluctant to notably upgrade its fiscal support measures. At around 35% in 2021-22, the debt burden in relation to GDP remains very low. With plenty of room for maneuver, given solid public finances, a more supportive fiscal stance could act as a springboard for the recovery and help keep a lid on long-term economic scarring. - February 2021.

Trade structure by destination/origin

(% of total)

Exports	Rank	Imports
Germany 20.7%	1	15.3% Germany
United Kingdom 9.5%	2	13.2% United States
Italy 7.6%	3	9.8% China
United States 7.6%	4	6.4% France
France 7.1%	5	5.7% India

Trade structure by product

(% of total)

Exports	Rank	Imports
Non-Monetary Gold 26%	1	31% Non-Monetary Gold
Pharmaceutical products 24%	2	11% Pharmaceutical products
Industrial machinery and parts 8%	3	7% Industrial machinery and parts
Clockmaking 7%	4	6% Road vehicles
Organic Chemicals 7%	5	5% Electrical machinery, apparatus and appliances

The payment behavior of Swiss companies is very good. Most payments tend to be made in advance or within 30 days.

Low
Medium
Sensitive
High

Payments
Court proceedings
Insolvency proceedings

Payments
Court proceedings
Insolvency proceedings

Domestic courts are fairly efficient in dealing with disputes in a timely manner; however collecting debt pre-legally remains the most effective option.

Although mechanisms designed to increase debt renegotiation and company rescue have been put into place, liquidation remains the default procedure at present, thus leaving little chance for unsecured creditors to collect debts from insolvent debtors.