SWITZERLAND

Switzerland boasted a solid growth track record in the two decades leading up to the Covid-19 shock, recording average annual GDP growth of +2% - notably above the +1.4% for the Eurozone as a whole. The Swiss economy was more resilient than its European peers and recorded an output loss of only 2.5%. Household consumption – notably of contact-based services including accommodation & dining - was hit hard by Covid-related business closures and international travel restrictions. However, industry (above all pharmaceuticals and chemicals) as well as the large financial services sector helped prop up economic activity. The economy restored its pre-pandemic size by Q2 2021 – half a year earlier than the Eurozone.

After a strong recovery in services and solid global demand during the first half of 2022, we expect the economic momentum will slow notably at the turn of 2022/23, given strong headwinds triggered by Russia’s war against Ukraine, including high inflation, rising interest rates and elevated geopolitical uncertainty. Despite a lower recession risk compared to its European neighbors, the Swiss economy is not immune to the global economic slowdown, which will show in a noticeable slowdown in Swiss export momentum. Moreover, while the strong structural underpinnings of private consumption, including the solid labor market situation (we expect unemployment to register at 2.2% in 2022-23) and elevated household savings, should help cushion the negative impact on spending, any recovery should remain subdued as elevated inflation for longer will continue to weigh on purchasing power. We expect real GDP growth of +2.2% this year and +0.3% in 2023. Switzerland is one of the few countries where insolvencies are already back above pre-crisis levels – we expect +3% in 2022 and +7% in 2023.

Switzerland has managed to keep inflation in check at around 3%, partly due to the strong Swiss franc (which has appreciated by more than 10% relative to the Euro YTD), which has reduced the cost of imported goods and services. Other factors include a more favorable energy mix (with electricity demand almost entirely met by hydropower and nuclear power), the highest share of regulated prices in Europe and a lower weight for energy and food in the consumer price index compared to other countries.  We expect inflation to come in at 3.2% in 2022 and 2.4% in 2023.

The Swiss business environment proves to be very strong: the country scores very well in regulatory quality, rule of law and control of corruption. Switzerland boasts a well-educated labor force. it also ranks 36 out of 190 economies in the 2020 World Bank Doing Business survey. In particular, getting electricity, registering property, trading across borders and paying taxes are ranked at the top among other OECD high-income countries