Switzerland: Economy

Despite a dearth of natural resources, Switzerland is one of the world's most advanced and prosperous nations. Per capita income is among the highest in the world, as are wages. Trade has been the key to prosperity in Switzerland. The country is dependent upon export markets to generate income while dependent upon imports for raw materials and to expand the range of goods and services available in the country. Switzerland has liberal investment and trade policies, with the exception of agriculture, and a conservative fiscal policy. The Swiss legal system is highly developed; commercial law is well defined; and solid laws and policies protect investments. The Swiss franc is one of the world's soundest currencies, and the country is known for its high standard of banking and financial services. Switzerland is a member of a number of international economic organizations, including the World Trade Organization (WTO), the International Monetary Fund, the World Bank, and the Organization for Economic Cooperation and Development (OECD).

The Swiss economy increased by 2.7% in 2010; its growth was expected to slow to 1.7% for 2011 as a result of various factors such as an appreciating Swiss franc. However, due to successful government debt reduction (imposed by the so-called debt brake), Switzerland is not expected to be impacted by strict austerity measures imposed in other areas of Europe. Switzerland led the rankings of the World Economic Forum’s Global Competitiveness Report 2011-2012, reflecting the country's sound institutional environment, excellent infrastructure, efficient markets, competent macroeconomic management, world-class educational attainment, and high levels of technological innovation, which boost Switzerland's competitiveness in the global economy. The country has a well-developed infrastructure for scientific research. Companies spend generously on research and development (R&D), and intellectual property protection is strong. Business activity benefits from a well-developed institutional framework, characterized by the rule of law, an efficient judicial system, and high levels of transparency and accountability within public institutions. Higher education and training are rapidly growing in importance as engines of productivity growth.

Being a nation that depends on exports for economic growth, and due to the fact that it is so closely linked to the economies of Western Europe and the United States, Switzerland's economy mirrors slowdowns and growth spurts experienced in these countries. During most of the 1990s, the Swiss economy was Western Europe's weakest, with annual GDP growth averaging 0% between 1991 and 1997. Beginning in late 1997, the economy steadily gained momentum until peaking in 2000 with 3% growth in real terms. The economy returned to lackluster growth during 2001-2003, but began growing at or above potential since 2004--2.5% per annum--until the recent global economic crisis, which impacted Switzerland's growth. The year 2008 was marked by a worsening of the financial crisis and the beginning of its spread to the economy as a whole. Long-run economic growth is predicated on structural reforms. In order to maximize its economic potential, Switzerland will need to push through difficult agrarian and competition policy reforms.

The economic upswing had some positive impact on the labor market, which has begun to fade due to the impact of the global financial crisis. Unemployment decreased from 4.1% in December 2003 to 1.5% in 2007, but was at 3.1% in November 2011. One-fourth of the country's full-time workers are unionized. In general, labor/management relations are good, mostly characterized by a willingness on both sides to settle disputes by negotiations rather than by labor action.

Tourism, banking, engineering, and insurance are significant sectors of the economy and heavily influence the country's economic policies. Swiss trading companies have unique marketing expertise in many parts of the world, including Eastern Europe, the Far East, Africa, and the Middle East. Not only does Switzerland have a highly developed tourism infrastructure (making it a good market for tourism-related equipment and services), the Swiss also are intrepid travelers. Per capita, Switzerland is among the countries with the most visitors to the United States every year. In 2010, about 391,000 Swiss citizens came to the United States as tourists. Tourism is the most important U.S. export to Switzerland.

The Swiss economy earns roughly half of its corporate earnings from the export industry. The EU is Switzerland's largest trading partner (59% of exports and 75% of imports in 2010), and economic and trade barriers between them are minimal. After more than 4 years of negotiations, an agreement known as the "Bilaterals I" covering seven sectors (research, public procurement, technical barriers to trade, agriculture, civil aviation, land transport, and the free movement of persons) entered into force on June 1, 2002. Switzerland has so far attempted to mitigate possible adverse effects of non-membership by conforming many of its regulations, standards, and practices to EU directives and norms. Full access to the Swiss market for the original 15 EU member states entered into force in June 2004, ending as a result the "national preference." The Swiss agreed to extend these preferences to the 10 new EU members on September 25, 2005, with restrictions remaining until 2011. A referendum was held in February 2009 on the Bilaterals I and the extension of the free movement of persons to Romania and Bulgaria.

The Swiss Government embarked in July 2001 on a second round of bilateral negotiations with the EU known as "Bilaterals II." Talks focused on customs fraud, environment, statistics, trade in processed agricultural goods, media, the taxation of savings, and police/judicial cooperation (dubbed the Schengen-Dublin accords). Amid a fierce political debate over the essence of Swiss-EU relations and populist warnings against EU workers and criminals entering Switzerland, the Schengen-Dublin package was approved on June 5, 2005 by 54.6% of Swiss voters and entered into force on December 12, 2008. Fears of cheap labor coming from new EU member states have prompted the government to provide for tripartite surveillance committees to ensure that decent wages are enforced. The Swiss federal government remains deeply divided over EU membership as its long-term goal, and in a March 2001 referendum more than 70% of Swiss voters rejected rapid steps toward EU membership. Switzerland nevertheless expressed interest in reaching a third layer of bilateral agreements that would involve energy, the Galileo satellite navigation system, health, and agriculture. But recent harsh criticism by the European Commission against preferential cantonal tax treatment for foreign holdings cooled the political climate with the EU.

The government also agreed on June 25, 2008 to propose an amendment of the Federal Law on Technical Barriers to Trade to permit implementation of the EU “Cassis-de-Dijon” principle. Parliament adopted this provision and it entered into force on July 1, 2010. As adopted, all EU products can be imported into Switzerland without meeting the burdensome Swiss certification and Swiss languages requirements. Given that retail prices in Switzerland are frequently 20%-30% higher than in the EU, the Swiss Government believes that domestic prices could drop by 10% if EU products could be imported through streamlined Swiss procedures, but there are no official figures yet available showing whether such a decrease of prices has actually taken place.

The government has reaffirmed its wish to strengthen ties with other, non-EU trading partners in Asia and America. Exploratory talks on a Free Trade Agreement between the U.S. and Switzerland failed to result in negotiations, due to Swiss problems with free trade in agriculture, but the two sides did agree to a new framework for economic, trade, and investment discussions. This agreement resulted in the Swiss-U.S. Trade and Investment Cooperation Forum (the "Forum") and is currently assessing areas where the two governments could facilitate greater trade and investment flows.

In 2010, Switzerland ranked 16th among the main U.S. export destinations, and 21st as a source of imports. The United States is the second-largest importer (9.75%) of Swiss goods after Germany (19.55%). In addition, the United States is the largest foreign investor in Switzerland, and conversely, the largest single destination of Swiss foreign investment. It is estimated that 300,000 American jobs depend on approximately $190 billion in Swiss investments in the United States.

Sources:

CIA World Factbook (February 2012)
U.S. Dept. of State Country Background Notes ( February 2012)

Glossary