For centuries Switzerland has adhered to a policy of armed neutrality in global affairs, which has given it the access and political stability to become one of the world’s wealthiest countries, with an efficient market economy
Its standard of living, industrial productivity and quality of education and health care systems are among the highest in Europe. Economic growth slowed to 0.9% in 2019 (IMF estimates), due to a global economic slowdown, especially an economic downturn in Germany, its biggest trading partner, and weak domestic consumption. The biggest risks for the Swiss economy stem from Italy’s fiscal policy, a significant cooling of the European economy and the possibility of a global trade war, which could impact Switzerland’s externally-oriented economy, appreciating the franc and eroding competitiveness in less-productive sectors. According to the updated IMF forecasts from 14th April 2020, due to the outbreak of the COVID-19, GDP growth is expected to fall to -6% in 2020 and pick up to 3.8% in 2021, subject to the post-pandemic global economic recovery.
Public debt continues to drop (38.6% of GDP in 2019) and is expected to follow a declining trend in the coming years. However, budget surplus decreased slightly to 1% in 2019 and is expected to drop to 0.4% in 2020 and 2021. Price inflation is estimated by IMF at 0.4% in 2019 and should remain modest over the next two years (-0.4% and 0.6% respectively), which are well below the Swiss National Bank objective of 2% and influenced by the outbreak of the COVID-19. Household consumption is gradually picking up (1.2% in 2019 and 1.5% in 2020, according to OECD estimates). Switzerland remains high atop the list of preferred tax havens due to its low taxation of foreign corporations and individuals. The flow of overseas wealth to the country has come in for much criticism in past years, due to concerns over tax evasion, and in 2018, the Tax Justice Network, an international group campaigning for transparency, chose Switzerland as the capital of bank secrecy in the world. However, after signing an agreement on the automatic exchange of information with the European Union, Switzerland put an end to bank secrecy in 2019. Since then, Swiss banks are required to share their clients’ information with foreign tax authorities. Finally, Switzerland is one of the most environmental friendly countries in the world, and pledged to phase out nuclear power by 2034 and reduce energy consumption by 35%.
A weakening of the Swiss franc helped boost economic growth, creating more jobs. The Swiss unemployment rate fell to 2.3% in 2019 and is expected to maintain the similar low level in the coming years – 2.7% in 2020 and 2.6% in 2021 – despite the negative economic impact of the COVID-19 pandemic (April 2020 World Economic Outlook IMF). According to the State Secretariat for Economic Affairs (SECO), all of Switzerland’s French-speaking cantons saw unemployment decline, however the large difference with German-speaking Switzerland remained (3.6% vs 2.2%). 7.5% of the population suffers from income poverty, but only 0.9% experienced it for four years or more.
Main Sectors of Industry
Switzerland is one of the most competitive economies in the world due to its strong added value services, its specialized industries and a motivated and highly skilled workforce of 4.9 million people out of a 8.5 million population. Agriculture represents 0.6% of GDP and employs 3% of the active population. The primary agricultural products are livestock and dairy products, though the country is also home to over 9,000 wineries. Swiss authorities grant numerous direct subsidies to farmers in order to meet strict ecological criteria, such as soil protection. The country has hardly any mineral resources. Despite the small size of the overall agricultural industry, organic farming has experienced considerable growth (14.5% of farm land, according to Federal Statistical Office), but with big cantonal differences.
Industry employs 20.1% of the workforce and constitutes 25% of GDP. Switzerland is renowned worldwide for the high quality of its manufactured products, which include watches, motors, generators, turbines and diverse high-technology products. The strong industry sector is driven by large exporting groups. Basel, in particular, is home to a very dynamic and powerful chemical and pharmaceutical industry. Electricity is generated chiefly from hydraulic and nuclear power. Hydroelectric resources provide almost two-thirds of the country’s energy.
The service sector represents 71.3% of GDP and employs 76.8% of the workforce. The banking sector alone represents 9.1% of the GDP and is in a moderately good shape despite considerable headwinds. Well-developed and globally competitive sectors, such as banking, insurance, freight and transport, have contributed to the development of international trade across Switzerland. Tourism, which adds significantly to the economy (more than 21 million foreign visitors in 2018, according to Swiss Tourism Federation), helps to balance Switzerland’s trade deficit.