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External factors threaten Swiss economic recovery, OECD says

 

24/01/2012 - Switzerland has made a broadly balanced recovery from the economic crisis but external factors are now weighing on the near-term outlook, according to the OECD’s latest Economic Survey of Switzerland.

The report, presented today in Berne by OECD Secretary-General Angel Gurría and Swiss Federal Councillor Johann N. Schneider-Ammann, highlights substantial uncertainty going forward, especially in the context of the euro area crisis. While strong exports and investment-driven domestic demand boosted growth in 2010 and 2011, economic indicators now point to a pending period of slow growth linked to the crisis in Europe, the OECD said.

“Switzerland is likely to suffer from decelerating activity in its trading partners, notably across Europe, as well as from the pressures for appreciation of the Swiss franc,” Mr. Gurría said. “Declining exports may weaken GDP growth in 2012, so vigilance will be necessary to see the economy through these difficult times.” ( read the full speech).

With inflationary pressures extremely low, the OECD recommends that Switzerland maintain an expansionary monetary policy. It warns, however, of the need for stronger macro-prudential legislation to dampen increases in mortgage lending associated with low interest rates and avoid the buildup of a domestic housing bubble.

To better control banking risks posed by the real estate sector, the OECD recommends  that the Swiss National Bank enlarge data collection for effective oversight of the mortgage market. The SNB should also be vested  with powers to slow mortgage lending growth when it becomes excessive.
   

Proposed reforms to regulation of the large, internationally active banks make substantial progress toward limiting potential risks from the financial sector. But a stricter leverage ratio requirement and a larger required share of highest-quality capital would have important benefits in terms of reducing risks at low cost for the economy, the OECD said.

The OECD outlines how Switzerland can use tax reforms to increase potential growth, reduce incentives for households to borrow and limit unwanted tax competition within the country. It calls for elimination of tax deductibility of household interest expenses from personal income tax; shifting tax burdens from personal income toward less-distortive taxes, like consumption taxes; and an end to limits on local governments’ ability to raise real estate taxes.

A special chapter of the Survey also highlights that meeting greenhouse gas emission reduction targets will require more cost-effective policies, in particular as concerns passenger road transport.

Further information on the Economic Survey of Switzerland, is available here.

Journalists seeking further information should contact the OECD Media Division: news.contact@oecd.org, +33 1 45 24 97 00.

 

 

 

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