RaboResearch - Economic Research

Switzerland: quick economic rebound after massive appreciation 2015

Country Report


switserland flag

The Swiss export sector was affected by a sharp appreciation of the Swiss Franc (CHF) following the Swiss central bank’s (SNB) decision to scrap the currency ceiling early 2015. However, economic growth held up and we expect a rebound of economic growth and exports this year. 

Strengths (+) and weaknesses (-)

(+) Competitive and wealthy economy

Switzerland is one of the richest countries in the world. The economy is diversified and competitive, illustrated by the first place of Switzerland on the WEF Global Competitiveness Ranking.

(+) Public debt is low and on a downward trajectory

Public debt was 34% of GDP in 2015, which is low by industrialised country standards. The fiscal framework introduced in 2003, the debt brake, will avoid a fast accumulation of public debt in the future.

(+) Large, positive, net international investment position (NIIP)

Since 1981, Switzerland has had a persistently large current account surplus, which was 9.3% of GDP on average over 2005-2014, resulting in a positive NIIP of 98% of GDP in 2014.

(-) Large banking sector poses a contingent liability to the government

The Swiss banking system had assets equal to 486% of GDP as of late 2013. The two largest banks account for about half of total assets. Despite higher capitalisation, this renders the Swiss government vulnerable in case of a financial crisis, especially in the face of high housing prices and mortgage debt. 

Key developments

1. Export sector shows resilience in face of CHF appreciation

Since the start of the Euro crisis, the Swiss central bank (SNB) has been concerned about the size of its balance sheet (Figure 1), which had been steadily growing as the SNB defended a currency cap of 1.2 EUR per CHF. Citing the risks of such a large balance sheet for SNB itself, the central bank unexpectedly abandoned its limit on the 15th of January 2015. Since, the CHF has seen an appreciation that has largely persisted throughout 2015 (Figure 2). This has led to only a mild decline in exports in 2015, -2.6% in constant prices (Figure 3).

Figure 1: High assets result of SNB intervention
Figure 1: High assets result of SNB interventionSource: Macrobond
Figure 2: Swiss franc appreciation persistent
Figure 2:  Swiss franc appreciation persistentSource: Macrobond (BIS)

The improvement of the trade weighted exchange rate against the USD helped Swiss exports while the US accounts for 14% of exports and is Switzerland’s largest trading partner. The effect of export growth to Eurozone countries was mitigated in part by accelerating growth in Switzerland's main Eurozone trading partners. In addition, the country’s strong chemical sector may have benefited from low oil prices. We see exports expectations are already increasing and point to modest export performance in 2016. 

Figure 3: Export indicators improving
Figure 3:  Export indicators improvingSource: Macrobond
Figure 4 Economic growth expected to edge up
Figure 4  Economic growth expected to edge upSource: EIU

2. Growth should recover after 2015 slowdown

2015 proved turbulent for the Swiss economy. Due to slowing economic prospects and the sudden appreciation of the Swiss Franc following the abandoning of the exchange rate limit by the SNB (see Figure 1), producer and consumer confidence took a batter. The economy was quick to recover, however, as consumption and equipment investment held up well despite the faltering confidence levels. This has resulted in an overall annual growth rate of 0.8%, compared to 1.9% a year earlier (figure 4). Purchasing managers indices (PMI) in the second half of the year have been consistently reassuring and underpin growth expectations of around 1.2% for 2016, which will be primarily driven by private consumption while external demand remains weak (Figure 4). 

3. Swiss-EU relations continue to sour over immigration

October 20, the Swiss federal elections took place and saw a further shift towards the right with the populist people’s party (SVP) attaining 29.4% of the vote, up from 26.6% in the 2011 election.  The SVP, which spearheaded the referendum on immigration back in 2014, has found its anti-immigration message ever more popular at a time that the EU struggles with the migrant crisis. The SVP’s influence over immigration reform puts the country at odds with the EU. The outcome of the 2014 referendum was a vote “against mass immigration”. Current Swiss proposals to turn that (legally binding) outcome into policy rely on quotas that also apply to EU nationals. This is likely to violate freedom of movement provisions on some of the bilateral treaties with the EU, such as treaties that allow European students to study in Switzerland under the Erasmus program. Although a Swiss-EU stand-off is not expected, relationships will remain strained. As immigration is one of the top concerns for the ‘out camp’ in the British Brexit referendum in June, the EU cannot permit itself an overly accommodative stance so as to not set a precedent. 

Factsheet of Switzerland
Factsheet of SwitzerlandSource: EIU, CIA World Factbook, UN, World Economic Forum, Transparency International, Reporters Without Borders, World Bank.


Background information

Switzerland has a relatively open, well-diversified and competitive economy. It is both a major financial centre and a big producer of chemicals, pharmaceuticals and luxury goods. As a result, the country is one of the wealthiest countries in the world. Moreover, the current account has been in surplus since 1981, which results in a large positive net international investment position. The country has strong public institutions that are well-known for their prudent policies. The government has had a budget surplus since 2006 and public debt is rather moderate. Every year a ceiling is calculated for total government spending. Whenever this maximum has been exceeded, the government is forced to save more in the following years. The Swiss political system consists of a representative democracy with instruments of direct democracy (referendums). This sometimes limits the scope for far-reaching reforms and makes the system somewhat more prone to populism. The central bank, the Swiss National Bank (SNB), has proved successful in reaching its inflation mandate in the past. However, Switzerland’s safe haven status and its high current account surpluses have exerted strong upward pressure on the exchange rate. Despite the fact that the Swiss franc was still pegged to the euro, Switzerland experienced mild deflation in 2012 and 2013. In January 2015 the SNB abandoned the peg, which resulted in a strong real appreciation of the franc. Switzerland’s very large banking sector (assets equal to 486% of GDP in late 2013) poses a contingent liability to the government finances, as shown by the necessary recapitalisation of UBS in 2008. After the global financial crisis, the regulation of the financial sector has become more stringent. All banks (both the big international banks and the domestic, mostly cantonal, banks have raised their capital levels significantly in recent years. 

Economic indicators of Switzerland
Economic indicators of SwitzerlandSource: EIU 
Jurriaan Kalf
RaboResearch Netherlands Rabobank KEO
+31 (0)30 21 62666

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