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SWITZERLAND

Mind the external headwinds

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 USD678.887bn (World ranking 20, World Bank 2017)
Population 8.47mn (World ranking 98, World Bank 2017)
Form of state Confederation (but similar to a federal republic)
Head of government Ueli MAURER (President of the Swiss Confederation)
Next elections October 2019, legislative

LATEST NEWS ABOUT SWITZERLAND

  • 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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External headwinds weigh on economic growth

Following a stellar GDP expansion of +2.5% last year, Swiss economic growth looks set to come in notably weaker in 2019. The slowdown in global activity is weighing on the performance of Swiss exports, which represent about 66% of GDP, while declining capacity utilization rates and the uncertain outlook due to elevated risks around trade, Brexit and Italy are keeping a lid on investment. Private consumption has become the most important pillar of the Swiss economy, thanks to the excellent labor market situation, with unemployment below 2.5% and employment still on the rise, albeit at a more gradual rate compared to recent years. Meanwhile, purchasing power is supported by moderate wage increases and relatively muted inflation rates of 0.4% and 0.6% in 2019 and 2020, respectively. Only in early 2020 do we expect the trade outlook to improve following a solution to the US-China trade dispute. As global trade shifts up a gear, the outlook for Swiss exports, and in turn investment, will start to recover. Overall, Swiss GDP growth looks set to rise from +1.3% in 2019 to +1.5% in 2020.
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Monetary policy normalization not in the cards for now

As a result of the cooling global growth outlook, the Swiss National Bank is still very far away from normalizing monetary policy. With other major central banks – and in particular the ECB – embarking on a policy u-turn, with further policy easing in store in the coming quarters, the SNB is forced to keep the current monetary policy course so as to avoid any unwarranted appreciation in the CHF. We expect the SNB to keep its key interest rates at the current record low of -0.75% at least through 2020.
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Fiscal policy may come to the rescue

At close to 130% of GDP, household debt in Switzerland is the highest in the world for developed economies. In contrast, the country’s public finances are in stellar shape. In 2017, the debt ratio fell below 42%, with 27% borne by the federal level and the remaining 15% by the cantons. This is the lowest level since 1991. The notable improvement in Switzerland’s public finances has been driven by increased budget discipline – the debt brake rule introduced in 2013, which requires the structural budget to be in balance, has consistently been overfulfilled – as well as strong economic growth. Should the economic outlook for Switzerland fail to improve, fiscal policy is likely to turn more supportive by at least exhausting the available fiscal space.
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Mortgage market developments pose a risk to financial stability

Fueled by low interest rates and investors’ hunt for yields, the Swiss housing market has seen continuous price increases for the past decade. Vacancy rates are at very high levels, implying a rising risk of loan defaults, but the construction boom is showing no sign of slowing down. Given the Swiss financial sector’s exposure to real estate lending, with mortgages making up more than 80% of banks’ domestic assets, a mortgage market crisis poses a risk to financial stability. We expect regulators to introduce additional measures to stabilize the market, including lower loan-to-value ratios.

Trade structure by destination/origin

(% of total)

Exports Rank Imports
Germany 15%
1
21% Germany
United States 13%
2
10% United Kingdom
China 10%
3
8% Italy
France 6%
4
8% United States
India 6%
5
7% France

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.

Download the entire collection complexity PDF:

Collection complexity Switzerland 821 KB

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Contact Euler Hermes

Economic Research Team

research@eulerhermes.com

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