OECD Economic Survey of Switzerland 2022 - Presentation

OECD ECONOMIC SURVEY OF SWITZERLAND

20 January 2022, Bern and Paris

Towards a strong and sustainable recovery www.oecd.org/economy/switzerland-economic-snapshot/ @OECDeconomy

@OECD

Key messages Fiscal and monetary policy should remain supportive but increasingly focus on facilitating resource reallocation.

Reduce barriers to competition in the internal market and lower administrative burden on start-ups.

Maintain stability in international agreements and openness to trade and investment.

Improve the environmental sustainability of consumption and investment as well as ensure consistent pricing of environmental externalities.

Raise labour-market participation of mothers and older people.

Reduce inequities in education.

2

The economy is set to recover but some sectors and groups were hard hit

3

The COVID-19 pandemic continues Daily COVID-19 new cases Per million inhabitants, 7-day moving average 2 700

Daily COVID-19 deaths Per million inhabitants, 7-day moving average

2 400

OECD

2 100

14

Switzerland OECD

Switzerland

12 10

1 800 1 500

8

1 200

6

900

4

600

2

300 0

Feb 20

Jul 20

Dec 20

May 21

Oct 21

Feb 20

Jul 20

Dec 20

May 21

Oct 21

0

Source: OECD calculations based on Our World in Data.

4

The Swiss economy has been resilient

Real GDP, index 2019 Q4 = 100 110

110 Switzerland

105

105 OECD

100

100

95

95

90

90

85

2019 Q4

2020 Q2

2020 Q4

2021 Q2

2021 Q4

2022 Q2

2022 Q4

2023 Q2

2023 Q4

85

Source: OECD Economic Outlook database.

5

The authorities have extended generous fiscal support The number of unemployed and short-time workers Thousand

Government deficit % of GDP 4

1200

Short time workers

2

Unemployed, ILO 0

800 600 400

-2

2022

2020

2018

2016

2014

2012

2010

2008

2006

2004

2002

200 2000

-4

1000

2015 2016 2017 2018 2019 2020 2021

0

Source: OECD Economic Outlook database; SECO; FSO 6

The fiscal position remains strong

Public debt is low 160

160

Gross financial liabilities

140

140

Net financial liabilities

120

120

100

100

OECD

80

80

60

60

40

40

Switzerland

20

20

0 -20

0 2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

-20

Source: OECD Economic Outlook database.

7

Monetary policy remains expansionary The SNB has intervened in the foreign exchange market

Policy interest rates % 2.5

Switzerland Euro area Sweden Denmark

2.0 1.5 1.0 0.5 0.0 -0.5 -1.0

2010

2012

2014

2016

2018

2020

% of imports 275 Foreign currency reserves 225

2010 = 100 145 135

Nominal effective exchange rate (right scale)

175

125

125

115

75

105

25

95

2010

2012

2014

2016

2018

2020

Source: Refinitiv; OECD Economic Outlook; SNB. 8

Vulnerabilities in the housing market have not abated

House prices

Banks’ mortgage claims

2015 = 100 120

Households

110

Y-o-y % change 9

Non-financial corporations

8 7

100

6

90

4

5

80 70

2010

2012

House price to income ratio

3

House price to rent ratio

2

2014

2016

2018

2020

2010

2012

2014

2016

2018

2020

1

Source: OECD, Analytical House Price Indicators database; SNB. 9

Accommodation and food service activities have been particularly hard hit Real gross value added Index 2019 Q4 = 100, seasonally and calendar adjusted

120 110 100 90 80 70 60 50 40 30 20

Chemicals and pharmaceuticals Construction Accommodation and food service activities

Employment Index 2019 Q4 = 100, full time equivalent Other manufacturing Trade, repair of motor vehicles and motorcycles Other business sector services

105 100 95 90 85

2019 Q4

2020 Q2

2020 Q4

2021 Q2

2019 Q4

2020 Q2

2020 Q4

2021 Q2

80

Source: SECO; FSO. 10

The crisis has hit low-income households more Change in income and spending October 2020 compared to normal situation, % 0

0

-5

-5

-10

-10

-15

-15

-20

-20

-25

Income Less than 4 000

4 000 to 6 000

6 000 to 10 000 Household income, CHF

10 000 to 16 000

Spending Over 16 000

-25

Source: SRG/Sotomo, 2021.

11

Main policy recommendations to support the recovery and promote economic restructuring  Monetary policy should remain accommodative until the recovery is firmly underway.  Consider reactivating the countercyclical capital buffer targeted at residential mortgages and progress further on managing the risks from “too-big-to-fail” banks.  Use the flexibility within the debt brake rule to avoid a too rapid tightening in fiscal policy.  Continue to narrow policy support to hardest-hit sectors and vulnerable groups.

12

 Once most pandemic restrictions are lifted, scale back the short-time working compensation scheme to prepandemic levels.

12

Boosting competition to raise productivity and growth

13

Labour productivity is one of the highest in the OECD…

GDP per capita USD, current prices, current PPPs, OECD = 100, 2019

COL MEX CRI CHL TUR GRC LVA SVK POL HUN PRT LTU EST SVN ISR ESP JPN KOR CZE NZL ITA OECD GBR FRA CAN FIN AUS BEL SWE DEU AUT NLD ISL DNK USA NOR CHE IRL LUX

200 180 160 140 120 100 80 60 40 20 0

MEX CRI CHL GRC HUN LVA KOR SVK POL TUR PRT EST NZL ISR JPN CZE LTU SVN CAN ESP OECD ITA AUS GBR FIN ISL DEU NLD SWE AUT USA FRA CHE BEL DNK NOR LUX IRL

GDP per hour worked USD, current prices, current PPPs, OECD = 100, 2019

260

200 180 160 140 120 100 80 60 40 20 0

Source: OECD Productivity database.

14

…but productivity growth has slowed

135

Labour productivity (real GDP per person employed) 1995 = 100 OECD

Switzerland

130

135 130

125

125

120

120

115

115

110

110

105

105

100

100

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

Source: OECD Productivity database.

15

Productivity improvements are needed to maintain high living standards Contribution to potential output per capita growth in % points Capital stock per worker Trend employment rate

Trend labour efficiency Potential output per capita growth

Trend working age population ratio Trend labour productivity growth

2.5

2.5

2.0

2.0

1.5

1.5

1.0

1.0

0.5

0.5

0.0

0.0

-0.5

2000

2003

2006

2009

2012

2015

2018

-0.5

Source: OECD Economic Outlook database.

16

Barriers in the internal market and state involvement reduce competition Product Market Regulation indicators From 0 (best practice) to 6 (most stringent), 2018 3.5

Switzerland

3

OECD average

Least stringent regulation (five lowest)

2.5

3 2.5

2

2

1.5

1.5

1

1

0.5 0

3.5

0.5 Overall PMR indicator

Public ownership State involvement in Simplification and Admin. burden on Barriers in service & Barriers to trade and business operations evaluation of start-ups network sectors investment regulations

0

Source: OECD 2018 PMR database.

17

0 Air transport

Broadcasting

Courier

Legal

Accounting

Commercial banking

Motion pictures

Computer

Rail freight transport

Switzerland

Sound recording

Construction

Logistics customs…

Logistics freight forwarding

Engineering

0.4

Logistics cargo-handling Road freight transport Logistics storage…

Architecture

Insurance

Telecom

Distribution

Agriculture and some services sectors are protected from global competition Services trade restrictiveness index (STRI) From 0 to 1 (most restrictive), 2020

0.5 0.5

OECD 0.4

0.3 0.3

0.2 0.2

0.1 0.1

0

Source: OECD STRI Regulatory database.

18

Main policy recommendations to boost competition and raise productivity  Fully implement the Internal Market Act to ensure equal access to markets in all cantons.  Harmonise the merger control framework with that of the EU and strengthen the civil law on cartels.  Reduce the administrative burden on start-ups.

Introduce “Silence is consent” licensing rules.  Expand the government one-stop shop (EasyGov.swiss) by integrating cantonal governments’ services.  Lower restrictions on trade in both goods and services, notably in agriculture. Remove the barriers to FDI where applicable and keep them low.

19

19

Using resources effectively to raise sustainability

20

Emissions are low and energy efficiency is high CO2 intensity CO2 per unit of GDP 0.4

Energy intensity Energy supply per unit of GDP

kg/USD (2015 PPP) OECD

ktoe/USD (2015 PPP) Demand

0.3 0.2 Switzerland

0.08

Demand

0.1

2005

2010

2015

0.04

Switzerland

Production

2000

0.12

OECD

Production

0

0.16

2020

2000

2005

2010

2015

2020

0

Source: OECD Environment Statistics (database).

21

Domestic emissions and material use have been decoupled from growth Decoupling 2000 = 100 160 140

Domestic material consumption

Total primary energy supply

GHG emissions

Real GDP

160 140

120

120

100

100

80

2000

2005

2010

2015

2020

80

Source: OECD Environment Statistics (database).

22

Environmental pressures remain with high material footprint Use of material resources 2019 or latest available year 35 30 25

35 Switzerland

30

OECD

25

20

20

15

15

10

10

5

5

0

Domestic material consumption (tonne/capita)

Material productivity (USD(2015 PPP)/kg)

Material footprint (tonne/capita)

0

Source: OECD Environment Statistics (database).

23

Municipal waste is high Municipal waste treatment 2019 or latest available kg/capita 800 700

Recycling and composting

600 Landfill

500 400

Incineration

300 200

Total municipal waste in 2000

100 0

Switzerland

OECD

Source: OECD Environment Statistics (database).

24

Main policy recommendations to boost effective use of resources

 Prepare a federal waste prevention strategy including indicative targets for municipal waste reduction.  Continue efforts to broaden the base of the carbon tax by reassessing exemptions and align pricing of CO2 emissions with international climate cost benchmarks.  Continue increasing transparency in relation to climate compatibility of financial portfolios.

Strengthen the disclosure of climate-related risks for large companies and the financial sector.

25

25

Raising labour market inclusion

26

Rapid population ageing creates pressures Population by age group millions 12 10 8

0-14 years

15-24 years

25-49 years

50-64 years

65-79 years

80+ years

6 4 2 0

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

2060

27

Note: In Panel A youth are shown in green, 25-64 year-olds in blue and seniors in orange. After 2020 data are from the “medium variant” of UN scenarios.

Source: United Nations (2019), World Population Prospects: The 2019 Revision, Online Edition.

27

Uptake of work by older workers is low Employment rate % of respective population, 2020 100

Switzerland

100

OECD countries

80

80

60

60

40

40

20

20

0

Men

Women 55 to 59

Men

Women 60 to 64

Men

Women 65 to 69

28

0

Source: OECD Employment and Labour Market Statistics database 28

Once unemployed, older workers can have difficulties in finding a job Incidence of long-term unemployment (1 year and over) by age group, % 50

50 2019

40

2020

40

30

30

20

20

10 0

29

30-34

35-39

40-44

45-49

50-54

55-59

60 and over 55 and over

10 0

Source: OECD calculations based on SECO. 29

Female labour force participation is high but many women work part-time Labour force participation rate Women, aged 15-64, 2020

60 50 40 30 20 10 HUN SVK LTU CZE POL LVA PRT SVN EST GRC TUR SWE FIN LUX FRA KOR ESP ISR ISL DNK CHL OECD CAN COL MEX BEL NOR NZL ITA IRL AUT GBR DEU AUS JPN CHE NLD

30

TUR MEX CHL ITA CRI COL KOR GRC POL OECD BEL HUN IRL SVK FRA ISR USA ESP LUX CZE PRT SVN AUT JPN AUS CAN GBR LVA DEU NOR DNK NZL FIN EST NLD LTU CHE SWE ISL

90 80 70 60 50 40 30 20 10 0

Incidence of part time employment Women, 2019 and latest available year

Note: Part-time employment is based on a common 30-usual-hour cut-off in the main job.

Source: OECD Labour Force Statistics database.

0

30

High cost of childcare discourages mothers to take up full-time work Net childcare costs for parents using childcare facilities Couple with 2 children earning the average wage, 2020 or latest available year % of net household income 30

30

25

25

20

20

15

15

10

10

5

5 ITA DEU AUT KOR SWE TUR ISL PRT ESP EST LVA NOR HUN POL GRC LUX DNK LTU ISR JPN SVN OECD CAN FRA BEL FIN CZE USA NLD AUS SVK GBR IRL NZL CHE

0

31

0

Source: OECD Social Expenditure Database, http://www.oecd.org/social/expenditure.htm; OECD Family database, http://www.oecd.org/social/family/database.htm.

31

Taxes and a reduction in benefits when taking up work act as a disincentive Participation Tax Rate (PTR) for parents claiming Unemployment Benefits and using childcare services¹ Couple with 2 children earning the average wage, 2020 or latest available year, % 150 125 100

Contribution of childcare benefits

Contribution of other benefits

Contribution of childcare fees

Overall indicator

150

Contribution of taxes

125 100

75

75

50

50

25

25

0

0

-25 32

KOR ESP EST ISR TUR NOR ITA JPN GRC LVA HUN PRT POL DEU NLD USA FRA OECD CZE ISL DNK FIN SVK SWE GBR SVN AUS IRL NZL LTU AUT CHE BEL CAN LUX

-50

-25

1. This indicator measures the financial disincentives to participate in the labour market. It calculates the proportion of earnings in the new job that are lost to either higher taxes or lower benefit entitlements when a jobless person takes up employment and claims unemployment benefits. Higher values means higher financial disincentives.

Source: OECD Social Expenditure Database, http://www.oecd.org/social/expenditure.htm; OECD Family database, http://www.oecd.org/social/family/database.htm.

-50

32

There is room to reduce inequities in education Children enrolled in early childhood education and care services 3 to 5-year-olds, %, 2018

140 120 100 80 60 40 20 EST LVA CAN NOR IRL ITA KOR DNK GBR SVN GRC NLD SWE OECD POL AUT USA CHE CZE BEL DEU ISR LUX

33

TUR CHE USA SVK FIN POL CZE LUX OECD NLD AUT SVN JPN LVA ITA SWE DEU KOR NOR ESP BEL DNK FRA IRL ISR GBR

100 90 80 70 60 50 40 30 20 10 0

Gap in reading performance between advantaged and disadvantaged groups Score difference, 2018

0

Note: A socio-economically advantaged (disadvantaged) student is a student in the top (bottom) quarter of ESCS (PISA index of economic, social and cultural status) in his or her own country.

Source: OECD, PISA 2018 Database, OECD (2020), "How do early childhood education systems differ around the world?", in Education at a Glance 2020: OECD Indicators.

33

Main policy recommendations to raise labour market participation and inclusion  Fix the retirement age at 65 for both genders and link it to life expectancy.  Keep expanding the supply of childcare and provide targeted measures to improve affordability.  Reduce disincentives to work for second earners.  Improve access to early childhood education and care for low-income households.

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For more information Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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