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Switzerland’s economy has performed well in recent years. At the same time, it has faced an extremely strong currency, in large part resulting from safe-haven capital inflows. This has precipitated two years of mild deflation and posed a threat to activity in the Swiss economy. Accordingly, policy interest rates have been reduced essentially to zero. The “minimum exchange rate” (a cap on the value of the Swiss franc against the euro), adopted two years ago, has resulted in a very large expansion of the central bank’s balance sheet. House prices have been increasing strongly, especially in a number of hotspots, driven by low interest rates as well as supply constraints and robust demand, especially from recent immigrants....
Despite macro-prudential tightening measures, the housing market has shown few signs of cooling. The minimum exchange rate remains in place as inflation is still zero, there are still risks of renewed safe-haven flows, and there is still some slack in the economy. The fiscal balance remains sound both at the federal level and in most cantons, thanks to healthy economic growth and the debt-brake rule, which has restrained expenditure growth through the cycle.
Switzerland is likely to achieve its Kyoto 2008-12 targets in large part by relying on international offsets. Meeting the 2020 target of a 20% reduction in domestic emissions from 1990 levels will be more challenging. The government’s Energy Strategy 2050 sets out the path from nuclear energy, which is to be phased out, to renewable sources. Until 2020, the Strategy relies on support for commercially immature technologies to achieve future supply targets, in combination with ambitious efficiency improvements. Thereafter, this system is to be gradually replaced by energy taxes. Therefore, replacement of the no-longer available nuclear electricity will predominantly be by renewable energies and through the more efficient use of electricity. Remaining demand could be covered by natural gas-fired power plants or electricity imports.
Over the past several decades GDP growth has been driven by immigration and since the turn of the century by highly skilled labour from the European Union. Productivity outcomes vis-à-vis other OECD countries have slipped steadily and are now significantly below the best performers. As the population ages and immigration slows, the focus of economic policy will need to shift even more to promoting productivity growth, exploiting underutilised labour resources, in particular women (see below), and further improving the integration of first- and second-generation immigrants, including by lifting their educational performance. While R&D and innovation are strong in the established sectors, entrepreneurship and small business formation are relatively weak, due in part to administrative barriers. The relative productivity of the agricultural sector is among the lowest in the OECD, and the sector relies heavily on direct government payments, which are still not sufficiently linked to environmental and productivity-boosting outcomes.
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Swiss women represent 45% of the labour force and about half of tertiary graduates. If better utilised, their human capital could provide a new source of GDP growth. However, a number of obstacles prevent better use of the potential female workforce. One is the paucity and very high cost of childcare and out-of-school-hours care. With high implicit marginal income tax rates and work disincentives in social benefits for second earners, the high female participation rate is coupled with one of the OECD’s highest incidences of female part-time work. Another barrier women face is cultural hurdles in the workplace. The result is that women are still significantly underrepresented as managers, directors and entrepreneurs.
How to obtain this publication
The complete edition of the Economic Survey of Switzerland is available from:
For further information please contact the Switzerland Desk at the OECD Economics Department at email@example.com.
The Secretariat’s draft report was prepared for the Committee by Petar Vujanovic and Richard Dutu under the supervision of Peter Jarrett. Research and editorial assistance was provided by Patrizio Sicari.