Core Views Switzerland's growth trajectory over the medium term will be increasingly powered by consumer spending, with the potential for the government to step in and boost growth in the event that the situation in the eurozone puts a sharp break on Swiss growth. The Swiss National Bank has set a ceiling on the Swiss franc's value versus the euro in the face of substantial appreciatory pressures resulting from the eurozone sovereign debt crisis. This will help to protect the country's export sector from a severe loss of competitiveness and thereby limit the impact of external turbulence on near-term economic growth. However, the massive scale of the monetary easing involved in such foreign exchange intervention could dramatically inflate property prices if maintained into the medium term.
Major Forecast Changes We have revised our 2014 and 2015 current account surplus forecasts to 14.9% of GDP and 14.5% from 11.3% and 11.1% respectively.
Table Of Contents
Switzerland Business Forecast Report Q4 2014 Executive Summary.... 5 Core Views..5 Major Forecast Changes5 Key Risks To Outlook....5 Chapter 1: Political Outlook.. 7 SWOT Analysis.... 7 BMI Political Risk Ratings. 7 Domestic Politics 8 Government To Pursue Further Financial Sector Reform..8 The Swiss government remains under constant pressure to reform the financial services industry, with the country's direct democracy system allowing voters much greater influence on the legislative agenda (compared to other developed countries). Switzerland is well ahead of its counterparts in tackling illicit activities and promoting transparency, but if it treads this path alone the Swiss financial services industry could lose its standing as a major global financial centre. Table: Political Overview....8 Chapter 2: Economic Outlook.. 11 SWOT Analysis.. 11 BMI Economic Risk Ratings. 11 Economic Activity.. 12 Outpacing The Eurozone..12 The Swiss economy will remain one of the stronger performers among developed states over the medium term, but will still be adversely affected by weak demand in the euro area. Moreover, despite domestic demand hitting a soft patch in the first quarter of 2014, we are sticking with our theme of longer-term rebalancing, which will be underpinned by favourable labour market dynamics and healthy credit growth. Table: ECONOMIC ACTIVITY....12 Economic Activity II.... 14 Tentative Return To Inflation.14 While it is still too early to confirm that the inflation print for May will herald the beginning of a sustainable transition towards positive inflation following two years of deflation, a build-up of demand-side price pressures over the medium term remains our core view. This will be underpinned by robust economic growth, favourable labour market dynamics, ample credit supply and modest Swiss franc depreciation over the medium term. Balance Of Payments.. 15 Bumper C/A Surplus Will Not Last..15 Switzerland's current account surplus has hit a new high, which has forced us to revise our medium-term forecasts. However, we maintain that an expansion in household demand, weak global trade and the impact of Switzerland's planned immigration curbs, will eat into the surplus over the medium to longer term. Table: CURRENT ACCOUNT16 Exchange Rate Policy. 17 CHF Will Depreciate Over Medium Term..17 The ongoing conflict between Russia and Ukraine has renewed upside pressure on the Swiss franc on the back of demand for safe haven assets. However, we maintain our view that the Swiss franc will depreciate against the euro over the medium term as the eurozone recovery picks up some momentum and the hunt for yield diminishes the appeal of overvalued Swiss assets. Table: Currency Forecast17 Table: EXCHANGE RATE18 Banking Sector.. 19 Robust Growth Ahead..19 We hold to a positive outlook for the Swiss banking sector, with total industry assets forecast to grow at a similar clip to broader economic growth over the medium term. Swiss banks will benefit from robust loan demand from households and corporates, with the continued inflow of deposits - both domestic and foreign - allowing the industry to continuing ramping up credit. Chapter 3: 10-Year Forecast 21 The Swiss Economy To 2023.... 21 Steady Growth To Prevail Over Long Term..21 We expect steady Swiss economic growth over our forecast period despite the global macroeconomic headwinds. We forecast Switzerland's real economic growth to average 1.8% over our forecast period on account of the solid fundamentals underpinning the domestic economy. Table: Long -Term Macro economic For ecasts .21 Chapter 4: Business Environment 23 SWOT Analysis.. 23 BMI Business Environment Risk Ratings 23 Business Environment Outlook 24 Institutions.... 24 TABLE : BMI BUSINESS AND OPERATION RISK RATINGS...24 TABLE : BMI LE GAL FRAMEWORK RATING...25 TABLE: LABOUR FORCE QUALITY.26 Infrastructure 27 TABLE : TRADE AND INVESTMENT RATINGS....27 TABLE : G20 - ANNUAL FDI INFLOWS28 Market Orientation.. 29 Operational Risk 30 Chapter 5: Key Sectors.. 31 Pharmaceuticals and Healthcare.. 31 Table: Pharm aceutic al Sales, Historic al Data And For ecasts 31 Table: Healthcare Expenditure Trends, Historical Data And Forecasts 33 Table: Gov ernm ent Healthc are Expenditur e Trends , Historic al Data And For ecasts ... 33 Table: Private Healthcare Expenditure Trends, Historical Data And Forecasts .. 34 Other Key Sectors.. 37 table: Telecoms Sector Key Indic ators ....37 Table: Infr astructur e Sector Key Indic ators .37 table: Autos Sector Key Indic ators .37 Chapter 6: BMI Global Assumptions. 39 Global Outlook... 39 Global Recovery Still On Track..39 Table: Glob al Assumptions ....39 Table: Developed States, Real GDP GrowtH, %.40 Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %.. 40 Table: Em erging Mark ets , Real GDP Growth , %41