Economic growth is projected to strengthen gradually, as a pick-up in global demand offsets the headwinds from the strong currency. Ultra-low interest rates, robust population growth, mainly driven by immigration, and lower import and commodity prices will support domestic demand. Resuming growth and the recent depreciation of the franc should allow inflation to become positive at the beginning of 2017.
Interest rates are set to remain negative until inflation becomes firmly positive. The automatic fiscal stabilisers should be allowed to play fully as the economy adjusts to the strong franc. Productivity can be boosted by increasing competition, especially in the telecoms and energy sectors, and by pushing forward with reforms in agriculture.
Switzerland’s greenhouse gas emissions are low thanks to its plentiful nuclear and hydroelectric power. However, the planned phase-out of nuclear generation and an ambitious commitment to reduce greenhouse gas emissions will require raising the price placed on greenhouse gas emissions, preferably through market-based instruments such as a carbon tax or a permit system. In transport, a variable congestion charge on roads and rail during peak periods could help.