215
Switzerland After a strong 2018 outturn, GDP growth is projected to be more subdued in 2019 and 2020. Slower external demand growth will weigh on exports and investment. Household consumption will strengthen as job creation and real wage growth pick up. Inflation is projected to edge up, but will remain low. Monetary policy is accommodative. Interest rates are set to remain at current negative levels until end-2020, when tightening is expected to start. A stricter bank-lending framework would help mitigate financial stability risks. Fiscal policy is currently neutral and on course to become expansionary in 2020. The budget balance, in surplus since 2015, is projected to remain so through 2020. Allowing more immigration and encouraging more women to study scientific fields could ease rising skills shortages. Growth slowed in the course of 2018 Growth is heading towards a modest pace after a marked slowdown in the second half of 2018. Fixed investment seems to be picking up from its end-2018 trough. Goods exports have been buoyant recently, especially in early 2019. Consumer confidence is around its long-run average. Business sentiment has bottomed out, but at relatively low levels.
Switzerland Inflation remains subdued
Tensions in housing markets rose in 2018
Y-o-y % changes 1.5
% of GDP 146
← Mortgage loans
Index 2015 = 100 110
Real house price² →
Headline inflation
1.0
144
108
142
106
140
104
-0.5
138
102
-1.0
136
100
Core inflation¹
0.5 0.0
-1.5
0
2010
2012
2014
2016
2018
2020
134
2015
2016
2017
2018
98
1. Core inflation excludes fresh and seasonal food products, energy and fuels. 2. The real house price series is deflated using the private consumption deflator from the national account statistics. Source: OECD Economic Outlook 105 database; Swiss National Bank; and OECD Analytical House Price database. StatLink 2 https://doi.org/10.1787/888933934964
OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019
216
Switzerland: Demand, output and prices 2015
2016
GDP at market prices Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding1 Total domestic demand Exports of goods and services Imports of goods and services Net exports1 Memorandum items GDP deflator Consumer price index Core inflation index2 Unemployment rate (% of labour force) Household saving ratio, net (% of disposable income) General government financial balance (% of GDP) General government gross debt (% of GDP) Current account balance (% of GDP)
654.2 348.7 78.1 155.6 582.4 - 4.8 577.7 406.9 330.4 76.5 _ _ _ _ _ _ _ _
2018
2019
2020
Percentage changes, volume (2010 prices)
Current prices CHF billion
Switzerland
2017
1.6 1.5 1.2 3.4 2.0 -1.4 0.3 6.7 5.9 1.2
1.7 1.2 0.9 3.4 1.7 -0.1 1.5 -0.1 -0.7 0.3
2.5 1.0 1.0 1.7 1.2 -0.9 0.2 2.0 -1.8 2.3
1.0 1.2 0.8 0.7 1.0 -0.1 0.9 0.0 -0.4 0.2
1.5 1.5 1.2 2.2 1.7 0.0 1.7 3.4 4.2 0.0
-0.6 -0.4 -0.3 4.9 18.7 0.4 42.1 9.4
-0.4 0.5 0.3 4.8 17.8 1.3 42.9 6.7
0.7 0.9 0.5 4.7 17.7 1.6 41.6 10.2
0.2 0.5 0.5 4.7 17.7 1.4 40.3 9.6
0.8 0.7 0.7 4.5 17.5 1.1 39.5 9.4
1. Contributions to changes in real GDP, actual amount in the first column. 2. Consumer price index excluding food and energy. Source: OECD Economic Outlook 105 database.
StatLink 2 https://doi.org/10.1787/888933935857
Both underlying and headline inflation remain subdued. Real wages have remained flat, weighing on household consumption and saving. Imbalances in the housing market worsened in 2018 as mortgage lending reached new highs and house prices rose while rents stagnated and vacancies increased. Weakening domestic demand in 2018 compressed imports, lifting the current account surplus to over 10% of GDP.
Measures are needed to address labour shortages and rising house prices Inflation is low, but consistent with the central bank’s target of between 0% and 2%. Monetary policy is expansionary and still-negative rates add to financial stability risks. The first increase in the policy rate, from -0.75%, is expected in late 2020. A proposal by the authorities that is currently under public consultation aims to increase the risk weights for investment property loans with high loan-to-value ratios. Banks are also considering whether to tighten self-regulation, using loan-to-value ratios. To reduce financial stability risks, a proper framework setting lending limits should be enforced on a comply-or-explain basis. The government’s fiscal stance is set to become expansionary in 2020, lowering the surplus, as monetary policy starts to normalise. Tax revenues will decline, reflecting a corporate tax reform with lower cantonal tax rates. A personal income tax reduction, planned for 2021, would lower work disincentives for second earners. Accompanying these reforms with higher value-added tax, as proposed, and increasing environmentally related taxes would improve the efficiency of taxation and reduce environmental damage. Boosting public investment from its relatively low levels could help meet long-term challenges, notably population ageing and climate change. OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019
217 Skills shortages are growing, especially in technical, scientific and information technology occupations. Job vacancies continue to rise, while immigration – a long-standing source of skilled workers in Switzerland – is slowing and population ageing is starting to bite. In the medium term, shortages could be alleviated by encouraging more women to study science, technology, engineering and mathematics. Allowing more non-EU immigration would also help in the shorter run.
Growth is projected to recover to trend in 2020 In 2019, subdued investment and exports will hold back GDP growth. Both are projected to improve in 2020 as global trade recovers. Household consumption will gradually gain momentum on the back of faster job creation and wage growth. Switzerland’s future relationship with the European Union depends on negotiations on an institutional framework that are currently stalled and failure to reach an agreement may hamper export-oriented sectors. The prospect of prolonged negotiations could hurt business confidence and investment. An escalation of global tensions could push up the safe-haven Swiss franc and damp exports. In contrast, past wage moderation may turn out to provide a stronger-than-foreseen boost to exports.
OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019