Continued recovery, driven by domestic demand

The economy was relatively resilient throughout the pandemic, thanks to its specialization in the financial sector (10% of GDP, including insurance) and the chemical and pharmaceutical industries (6.4% of GDP in 2019, one-third of the manufacturing sector). Thus, in mid-2021, GDP was only 0.5% below its pre-crisis level, compared with 3% in France and Germany. In 2022, activity should continue to catch up with strong domestic demand. While public spending is set to decrease (4.8% according to the 2021 budget), household consumption will be the primary driver of the recovery. Vaccinating much of the population (66% of people were fully vaccinated in November 2021) should make it possible to avoid introducing restrictions that would undermine economic activity. This should encourage the consumption of savings built up during the crisis – the savings rate stood at 19.9% of gross disposable income at the end of 2020, compared with 13.3% a year earlier. However, the recovery will be hampered by supply difficulties and the production capacity of companies, whose utilization rate hit the highest reading in over a decade at the end of 2021 (85%), which will prompt them to continue investing in 2022. Furthermore, while imports will accelerate in line with domestic demand, trade should continue to make a positive contribution to growth, notably thanks to licensing sales generated in 2022 in connection with staging the Winter Olympics and the Soccer World Cup, which are considered to be services exports (these sales earn revenue for the IOC and FIFA, which are based in Switzerland).

In line with recent years (key rate unchanged at -0.75% since 2015), and despite the slight rebound in inflation at the end of 2021, the Swiss National Bank should continue its ultra-accommodative policy in 2022 employing targeted interventions on the foreign exchange market and the provision of liquidity to commercial banks, to limit the appreciation of the Swiss franc and support activity.

Public accounts are back in balance, but the international tax agreement is a challenge 

After two years of deficits due to the collapse in activity and support measures, public finances will recover in 2022. They could return to a surplus, as in the 15 years preceding the pandemic, except for 2013 and 2014. This rebalancing will be achieved by both a rebound in tax revenue (3.3% increase according to the 2022 budget), thanks to solid performances by companies in the financial and pharmaceutical sectors, and by the scrapping of support measures. Public debt, which should thus resume its downward trend in 2022, is particularly low for a developed economy, with ten-year yields in negative territory (-0.2%) at the end of 2021. However, having signed, in October 2021, the international agreement that sets the minimum tax rate on corporate profits at 15%, which is higher than the rate in force in 18 of the country’s 26 cantons, Switzerland will have to address attractiveness challenges in the medium-term (most likely 2023). Accordingly, the Federal Council has announced that a tax reform plan will be drawn up in the first quarter of 2022.

The country consistently posts a sizeable current account surplus, thanks to the balance of goods and, to a lesser extent, services (thanks to finance and sports licenses). This substantial trade surplus (10% of GDP in 2019) largely offsets the structural deficit in the income balance, mainly attributable to transfers by foreign workers domiciled in Switzerland and cross-border commuters. Swiss assets abroad allow the country to have a substantial net foreign asset position (96% of GDP at the end of June 2021), the size of which varies with stock market prices and the USD/CHF exchange rate.

Debate on party representation in the Federal Council likely to return in 2023

Despite the historic breakthrough achieved by left-wing environmentalists (Greens, which increased their share from 7% to 13% of the vote) in the October 2019 elections, the composition of the Federal Council (government) remained unchanged, with all seven members re-elected by the National Council (lower house of the Federal Assembly). Despite losing ground in the election, nationalist conservatives (SVP, 26%), the Socialist Party (17%), and the liberal democrats (FDP, 15%) each retained two ministerial posts. In contrast, the Christian democrats (CVP, 11%) held onto their councilor. The Greens’ attempt to enter the Federal Council by replacing one of the two councilors provided by the FDP, whose government representation appeared disproportionate to the party’s electoral result, came up against a desire for stability in the assembly, where the center and right continue to hold the majority. At mid-term, polls confirmed that support for the FDP was slipping, with the party receiving only 13% of voting intentions for the October 2023 elections, i.e., the same as the Greens and The Centre (a merger of the CVP and the center-right BDP). Suppose these poll findings are borne out in the next elections. In that case, this will rekindle the debate on party representation in the Federal Council, especially with the rise of the Green Liberal Party (10%, up 2 points) adding to the evidence of the environmentalist movement’s growing momentum.