Download Country Analysis – Switzerland

Country Analysis – SWITZERLAND
Index
1. GDP and main production
2. Aggregate Demand (C + I + G + NX)
3. Current Situations
4. Past Situations.
1) GDP and main production
The above chart shows the amount of GDP of Switzerland from 2006 to 2014. In
general, it shows a gradual increase for almost 10 years. However, it hesitated to rise in 2010
and 2013. However, GDP growth of Switzerland is forecasted by economists to slow down
because of the revaluation of Swiss franc.
Since the decision of the Swiss National Bank (SNB) taken on 15 January to abolish
the exchange rate floor of 1.20 franc to 1 euro and the subsequent appreciation of the Swiss
franc, the economic indicators for Switzerland have worsened. Nevertheless, although the
appreciation of the Swiss currency will have a detrimental impact on the competitiveness of
Swiss companies, the brighter economic prospects for Europe and the strengthening upturn in
the USA should alleviate these negative effects.
Seen from the today’s viewpoint Switzerland may experience a temporary economic
slowdown. However, in the current environment there are no signs of any sharp downturn –
with a marked fall in economic activity and sharp rise in unemployment. Consequently,
growth in GDP for 2015 and 2016 is expected to be +0.9% and +1.8% respectively, with a
slight increase in the unemployment rate. Although the economy will experience a moderate
general slowdown, certain sectors or individual companies are currently faced with severe
competitive pressures.
The chief industry in Switzerland is mechanical and electrical engineering. This,
coupled with a favorable location and climate for the summertime generation of power from
rivers, has contributed to Switzerland becoming an important exporter of hydroelectricity.
The hydropower sector in Switzerland is worth approximately 2 billion Swiss francs, which is
close to $2.3 billion.
Due to the Swiss specialization in precision engineering, towns and cities like Geneva,
Neuchatel, Biel and Grenchen have also been closely associated with high-quality watch
making for centuries. At one time, before Asian watch markets proliferated in the 1970s,
Switzerland produced almost half of the world's watches as pioneers in the use of quartz
crystals.
Among its chemical industries are the Basel-based pharmaceutical giants, Novartis and
Roche. Although both of these are multinational companies, Switzerland itself has a long
tradition of chemicals and pharmaceuticals, having developed their manufacturing industry
out of nineteenth-century dye-making.
An overwhelming majority of Switzerland's industries, approximately 99.6 percent, are
classified by the European Union as small and medium-sized enterprises, or SMEs.
Switzerland has a mature market economy based on

export oriented machine and electrical manufactures (high precision motors,
generators, turbines, textile and tool machines, mills, watches and many innovative
high-tech products) including automation equipment and engineering of whole power
or industrial plants. The focus is on niche products with a high proportion of complex
engineering but rather small series.




chemicals (colors, fertilizers, pestizides) and pharmaceuticals
financial services: international trade, insurance and banking
tourism
export of electrical energy, primarily peak power (winter days) produced by
Switzerland's many hydroelectrical plants
2) Aggregate Demand (C + I + G + NX)
Switzerland’s country size is small and it has limited natural resources. Therefore it
must rely on import. Moreover, it has a small domestic market due to its 7-million population,
which means export is important to them as well. Due to these limitations, trade is becoming
a more crucial part of Switzerland’s economy. It can also be reflected in Switzerland’s GDP
by composition. The proportion of export in its GDP has gradually increased throughout the
years. In 2013, export took up more than 70% of the total GDP. Size of import has shown
similar growth when measured in terms of % of GDP.
Exports of goods and services
(% of GDP)
80
60
40
20
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
0
On the other hand, proportion of domestic final consumption expenditure and gross
investment expenditure in total GDP both experienced fluctuations but eventually decreased,
while government expenditure, measured in % of GDP, is stable.
Household final consumption
expenditure, etc. (% of GDP)
65
60
55
50
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
45
Gross capital formation (% of
GDP)
40
30
20
10
2012
2014
2012
2014
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
0
General government final
consumption expenditure (% of
GDP)
15
10
5
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
0
A large volume of trade also implies that its trading partners will easily affect the
performance of Switzerland’s economy. Since United States and European countries have
been the major trading partners of Switzerland, Switzerland’s GDP has shown a dependence
on the performances of their economies.
The economies of US and Europe have faced 3 major recessions throughout the last
30 years (in early 1990s, early 2000s and the recent 2008 recession). When we observe the
annual % growth of Switzerland’s household consumption and import, we can find troughs of
minimal or negative growth corresponding to these 3 periods. These indicate that economic
recessions in Europe and US will also weaken domestic demand of Switzerland.
Switzerland’s dependence on other economies is also proved.
-5
10
5
0
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
2014
15
2014
(annual % growth)
2012
Imports of goods and services
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
-2
1980
Household final consumption
expenditure, etc. (annual %
growth)
4
2
0
3) Current situation of Switzerland and our policy recommendation
Current Situation
Switzerland’s economy is based on a highly qualified labour force performing highly
skilled work. The main areas include microtechnology, tourism, banking and as well as
insurance. The service sector now employs over half of the active population of Switzerland.
Most of the people working in Switzerland are employed by small and medium-sized
enterprises, which play an extremely important role in the Swiss economy. The Swiss are
concerned that economic activity should have as little impact as possible on the environment.
Switzerland's energy and transport policies aim to be environmentally friendly. However the
age of unlimited economic growth in Switzerland is over. Fear of unemployment has been
one of the main concerns of the Swiss for several years.
Another situation that Switzerland is that Swiss National Bank (SNB) suddenly
announced that it would no longer hold the Swiss franc at a fixed exchange rate with the euro,
there was panic. The franc soared. One euro was worth 1.2 Swiss francs; at one point on
Thursday its value had fallen to just 0.85 francs. A number of hedge funds across the world
made big losses. The Swiss stockmarket collapsed.
The question now is how much the removal of the cap will hurt the Swiss economy.
The stockmarket fell because Swiss companies will now find it more difficult to sell their
wares to European customers. UBS, a bank, downgraded its forecast for Swiss growth in
2015 from 1.8% to 0.5%. Switzerland will probably remain in deflation. But the SNB should
not be lambasted for removing the cap. Rather, it should be criticised for adopting it in the
first place. When central banks try to manipulate exchange rates, it almost always ends in
tears.
Policy Recommendation- Unemployment benefits
If you become involuntarily unemployed, you are entitled to 70 per cent of the
average earnings paid into your unemployment insurance in the previous six months. If you
have a child or your daily allowance falls below a predetermined minimum, you are entitled
to 80 per cent of the average earnings in the last six months.
Unemployment benefit is allocated as a daily allowance covering five days per week.
Entitlement begins after a waiting period of five days of proven unemployment.
Unemployment benefits allows up to 400 daily allowances to be received in a two-year
period. If you’re over 55 and have made unemployment insurance contributions for at least
18 months, you are permitted up to 520 daily allowances in the same period.
In many cases, your employment office might allow you to take training courses or
be allowed to benefit from other programmes while continuing to receive daily allowances.
I think this policy can protect the laid-off workers, but I think the allowances are too
high, over 70%, and the duration is too long. These reduce the incentives of unemployed
workers to find a job immediately.
4) PAST situations over 20 years in Switzerland
The economy of Switzerland is one of the world's most stable economies. Its policy
of long-term monetary security and political stability has made Switzerland a safe haven for
investors, creating an economy that is increasingly dependent on a steady tide of foreign
investment.
Because of the country's small size and high labor specialization, industry and trade
are the keys to Switzerland's economic livelihood. Switzerland has achieved one of the
highest per capita incomes in the world with low unemployment rates and a balanced budget.
The service sector has also come to play a significant economic role.
19th century
Switzerland as a federal state was established in 1848. Before that time, the citycantons of Zurich and Basel in particular began to develop economically based on industry
and trade, while the rural regions of Switzerland remained poor and under-developed. While
a workshop system had been in existence throughout the early modern period, the production
of machines began in 1801 in St. Gallen, with the third generation of machines imported from
Great Britain. But in Switzerland, hydraulic power was often used instead of steam-engines
because of the country's topography while there are no significant deposits of coal.
By 1814, hand weaving had been mostly replaced by the power loom.
Both tourismand banking began to develop as an economic factor from about the same time.
While Switzerland was primarily rural, the cities experienced an industrial revolution in the
late 19th century, focused especially on textiles. In Basel, for example, textiles, including silk,
were the leading industry. In 1888 women made up 44% of the wage earners. Nearly half the
women worked in the textile mills, with household servants the second largest job category.
The share of women in the workforce was higher between 1890 and 1910 than it was in the
late 1960s and 1970s.
Gotthard line in 1882
Railways played a major part in industrialization with the first railway appearing in 1847
between Zurich and Baden. Due to competition between private players, Switzerland was
covered with more than 1000 km of track by 1860.
20th century
The industrial sector began to grow in the mid-19th century, but Switzerland's
emergence as one of the most prosperous nations in Europe, sometimes termed the "Swiss
miracle" was a development of the short 20th century, among other things tied to the role
of Switzerland during the World Wars.
During World War I, Switzerland suffered an economic crisis. It was marked by a
decrease in energy consumption, energy being mostly produced by coal in the 1910s, 1920s,
1930s and 1940s. The war tax was introduced. As imports were difficult, attempts were made
to strengthen the Swiss economy.
Switzerland's total energy consumption, which was dropping from the mid-1910s to
the early 1920s, started increasing during the early 1920s. The same got stagnated during the
1930s before dropping again during the early 1940s before an exponential growth which
started in the mid-1940s.
In the 1940s, particularly during World War II the economy profited from the
increased export and delivery of weapons to the German Reich, France, Great Britain, and
other neighboring and close countries. However, Switzerland's energy consumption
decreased rapidly. The conduct of the banks cooperating with the Nazis, but not exclusively,
they also cooperated extensively with the British and French. and the commercial relations
with the axis powers during the war became the subject of sharp criticism, resulting in a short
period of international isolation of Switzerland from the world. After World War II,
Switzerland's production facilities remained to a great extent undamaged which facilitated the
country's swift economic resurgence
In the 1950s, annual GDP growth averaged 5% and Switzerland's energy
consumption doubled. Coal lost its rank as Switzerland's primary energy source, as other
fossil fuels such as crude and refined oil and natural and refined gas imports increased. This
decade also marked the transition from an industrial economy to a service economy. Since
then the service sector has been growing faster than the agrarian and industrial sectors.
In the 1960s, annual GDP growth averaged 4% and Switzerland's energy
consumption doubled. By the end of the decade oil was Switzerland's primary energy source
In the 1970s GDP growth rates gradually declined from a peak of 6.5% in 1970 until
contracting 7.5% in 1975 and 1976. Switzerland became increasingly dependent on oil
imported from its main supplier, the OPEC cartel. The 1973 international oil crisis caused
Switzerland's energy consumption to decrease from 1973 to 1977. In 1974 there were three
nationwide car-free Sundays when private transport was prohibited as a result of the oil
supply shock. From 1977 onwards GDP grew, however Switzerland was also affected by
the 1979 energy crisis which resulted in a short term decrease of Switzerland's energy
consumption.
In the 1980s, Switzerland was affected by the hike in oil prices which resulted in a
decrease of energy consumption until 1982 when the economy contracted by 1.3%. From
1983 on both GDP and energy consumption grew.
In the 1990s, Switzerland's economy was marred by slow growth, having the weakest
economic growth in Western Europe. The economy was affected by a 3-year-recession from
1991 to 1993 when the economy contracted by 2%, which also became apparent in
Switzerland's energy consumption and export growth rates. Switzerland's economy averaged
no appreciable increase (only 0.6% annually) in gross domestic product (GDP).
After having unemployment rates lower than 1% prior to 1990, the 3-year-recession
also caused the unemployment rate to rise to its all-time-peak of 5.3% in 1997. And thus, as
of 2008, Switzerland is at the second place among European countries with populations
above one million in terms of nominal and purchasing power parity Gross Domestic
Productper capita, behind Norway (see list). On numerous occasions in the 1990s real wages
decreased since nominal wages couldn't keep up with inflation. However, beginning in 1997,
a global resurgence in currency movement provided the necessary stimulus to the Swiss
economy. It slowly gained momentum and peaked in the year 2000 with 3.7% growth in real
terms.
2000s
The labour productivity level of Switzerland is one of highest in Europe.OECD, 2012
In the early 2000s recession, being so closely linked to the economies of Western
Europe and the United States, Switzerland was not able to escape the slowdown felt in these
countries. After the worldwide stock market crashes in the wake of the 9/11 terrorism attacks
there were more announcements of false enterprise statistics and exaggerated managers'
wages. In 2001 the rate of growth dropped to 1.2%, to 0.4% in 2002 and in 2003 the real
GDP contracted by 0.2%. That economic slowdown had a noticeable impact on the labour
market.
Many companies announced mass dismissals and thus the unemployment rate rose from
its low of 1.9% in June 2000 to its peak of 3.9% in October 2004, although well below
the European Union (EU) unemployment average of 8.9%. The consumer mood worsened
and domestic consumption decreased
The exports of goods and services in the EU and the USA decreased as a result of the
Swiss Franc's appreciation in value which caused an increase in prices of exported goods and
services. On the other hand Switzerland's tourism sector slumped and room occupation rates
by foreign guests decreased. Besides that a deficit of market competition in many branches of
Switzerland's economy persisted.
On the 10.11.2002 the economics magazine Cash published 5 measures which political
and economic factors were suggested to implement so that Switzerland would once again
experience an economic revival:
1. Private consumption should be promoted with decent wage increases. In addition to
that families with children should get discounts on their health insurances.
2. Switzerland's national bank should revive investments by lowering interest rates.
Besides that monetary institutes should increasingly credit consumers and offer
cheaper land zones which are to be built on.
3. Switzerland's national bank is asked to devalue the Swiss Franc, especially compared
to the Euro.
4. The government should implement the anti-cyclical measure of increasing budget
deficits. Government spending should increase in the infrastructural and educational
sectors. Lowering taxes would make sense in order to promote private household
consumption.
5. Flexible work schedules should be instituted, thus avoiding low demand dismissals.
These measures were applied with successful results along with the government's
policy of the Magical Hexagon which consists of full employment, social equality, economic
growth, environmental quality, positive trade balance and price stability. The rebound which
started in mid-2003 saw growth rate growth rate averaging 3% (2004 and 2005 saw a GDP
growth of 2.5% and 2.6% respectively; for 2006 and 2007, the rate was 3.6%). In 2008, GDP
growth was modest in the first half of the year while declining in the last two quarters.
Because of the base effect, real growth came to 1.9%. While it contracted 1.9% in 2009, the
economy started to pick up in Q3 and by the second quarter of 2010, it had surpassed its
previous peak. Growth for 2010 stood at 2.6%
The stock market collapse has deeply affected investment income earned abroad. This
has translated to a substantial fall in the surplus of the current account balance. In 2006,
Switzerland recorded a 15.1% per GDP surplus. It went down to 9.1% in 2007 and further
dropped to 1.8% in 2008. It recovered in 2009 and 2010 with a surplus of 11.9% and 14.6%
respectively. As of the first quarter 2010, Switzerland house prices are still edging up.
This is a chart of trend of gross domestic product of Switzerland at market prices
estimated by the Swiss Government with figures in millions of Swiss Francs.
Gross
Year
Domestic
Product
US Dollar
Exchange
1980 184,080
1.67 Francs
1985 244,421
2.43 Francs
1990 330,925
1.38 Francs
1995 373,599
1.18 Francs
2000 422,063
1.68 Francs
2005 463,799
1.24 Francs
2006 490,545
1.25 Francs
2007 521,068
1.20 Francs
2008 547,196
1.08 Francs
2009 535,282
1.09 Francs
2010 546,245
1.04 Francs
2011 659.3
0.75 Francs
2012 632.2
...
REFERENCES
http://www.tradingeconomics.com/switzerland/gdp-growth
http://www.seco.admin.ch/themen/00374/00375/00376/?lang=en
http://www.globaltenders.com/economy-switzerland.htm
http://motherearthtravel.com/switzerland/economy.htm
http://www.theodora.com/wfb1990/switzerland/switzerland_economy.html