Switzerland

Recovery of GDP and export growth to continue against the background of a stabilized CHF/EUR exchange rate

Country Rating AA1

Strengths

  • Sound political institutions
  • Specialized in manufacturing of high-quality goods with, however, a relatively inelastic demand during economic crises
  • Large current account surpluses
  • Very good public finances with fiscal surpluses and low public debt

Weaknesses

  • International pressures on bank secrecy, populist votes on immigration and an ageing population could affect the currently strong business environment in the medium term
  • The banking asset to GDP ratio is amongst the largest in the world at 450% in 2013.

 

Economic Overview

 

Strong macroeconomic fundamentals

Switzerland is a high income economy with estimated GNI per capita of USD84,720 in 2015. Macroeconomic fundamentals are very strong, reflected in many years of large current account surpluses and near-balanced fiscal accounts. Public debt is moderate at about 35% of GDP. If needed, the economy has sufficient buffers to withstand the impact of domestic or external shocks for some time. 

 

Gradual recovery to continue 

Real GDP growth weakened somewhat towards the end of 2016, posting +0.1% q/q in Q4 (unchanged from Q3) and +0.6% y/y (+1.4% in Q3). Still, this took full-year 2016 growth to +1.3%, indicating that the impact of the shock from the strong CHF appreciation after the removal of the CHF:EUR cap in January 2015, which cut growth to just +0.8% in 2015, is gradually waning. This is also reflected in external trade figures which show that real exports grew by +4.6% in 2016 (up from +2.2% in 2015). Imports expanded by +2.7% (+4.3% in 2015) so that net exports made a positive contribution of +1.6pp to 2016 growth (-0.9pp in 2015). However, this was offset by strong inventory destocking which subtracted -1.8pp from growth (+0.5pp in 2015). Meanwhile, fixed investment accelerated to +2.5% in 2016 (+1.5% in 2015) while private and government consumption continued to increase at a solid pace, by +1.2% and +1.9% (+1% and +2.2% in 2015) respectively.

 

Euler Hermes expects the recovery to continue and forecasts full-year GDP to rise by +1.6% in 2017 and +1.7% in 2018. Growth in the next two years  is projected to be more balanced between domestic and external demand than in 2015-2016.

 

Exchange rate of CHF has found a new equilibrium against the EUR

The year 2015 was affected by global currency turbulences and, in particular for Swiss companies, the decision of the Swiss National Bank (SNB) to end the exchange rate cap of CHF1.20/EUR in January 2015. Consequently, Swiss total exports of goods (excluding non-monetary gold and valuables) decreased by –CHF5.4bn in 2015 (exports to the Eurozone –CHF6.4bn). However, the CHF/EUR rate stabilized around an average 1.09 in 2016 (slightly weaker than the average 1.07 in 2015) with low volatility. As a result, exports rebounded and gained +CHF7.8bn last year (Eurozone +CHF4.6bn). Euler Hermes expects the exchange rate to remain relatively stable around an average CHF1.07  per EUR in 2017. 

 

Deflation, which was exacerbated by the CHF appreciation in 2015-2016, has finally also given way to positive inflation. Consumer prices increased by +0.3% y/y in January 2017 and +0.6% in February. Euler Hermes forecasts average annual inflation of  +0.9% in 2017 and +1.3% in 2018.

 

Last review: 2017-21-09