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Switzerland Country Risk Report Q4 2016

  • August 2016
  • -
  • Business Monitor International
  • -
  • 39 pages

Core Views

In the coming year, rising external and domestic headwinds willweigh on economic growth in Switzerland. These include a Brexitinducedslowdown in regional trade and subsequent rise in politicaluncertainty, a weak short-term consumption outlook and rising riskssurrounding the property market.The negative side effects of rapid Swiss franc appreciation in early2015 have largely worn off, with negligible lasting damage to theeconomy, and Switzerland is poised for stable real GDP growth overthe medium term.Switzerland's growth trajectory will be increasingly powered byconsumer spending.The government's robust fiscal position implies it will be able to stepin and boost growth in the event that any external shock puts a sharpbrake on Swiss growth.The Swiss National Bank will refrain from cutting interest rates deeperinto negative territory and instead will continue to intervene in foreignexchange markets in order to prevent excessive franc appreciation.Beyond the next several years, the franc will gradually depreciatefrom fundamentally overvalued levels.A narrowing of Switzerland's large current account surplus will gathersteam in 2016, but the surplus will remain sizeable over the comingyears.

Major Forecast Changes
We have revised down our Swiss real GDP growth forecasts to1.1% and 1.4% in 2016 and 2017 respectively, from 1.5% and 1.7%previously.

Table Of Contents

Switzerland Country Risk Report Q4 2016
Executive Summary.. 5
Core Views...5
Major Forecast Changes.5
Key Risks.5
Chapter 1: Economic Outlook.. 7
SWOT Analysis... 7
BMI Economic Risk Index.. 7
Economic Growth Outlook 8
Rising Headwinds To Stifle Recovery...8
We have revised down our growth forecasts for Switzerland in 2016 and 2017 on account of rising domestic and external headwinds.
These include a Brexit-induced slowdown in regional trade and subsequent rise in political uncertainty, a weak short-term consumption
outlook and rising risks surrounding the property market.
GDP By Expenditure Outlook.. 10
TABLE: GDP GROWTH FORECASTS10
TABLE: PRIVATE CONSUMPTION FORECASTS..10
TABLE: GOVERNMENT CONSUMPTION FORECASTS...10
TABLE: FIXED INVESTMENT FORECASTS..11
TABLE: NET EXPORTS FORECASTS11
Fiscal Policy And Public Debt Outlook.. 11
Conservative Fiscal Stance Ensures Safe Haven Status..11
With one of the most conservative fiscal policies globally, Switzerland will remain a global safe haven. Ultra-low borrowing costs will
facilitate debt consolidation in the coming years, putting Switzerland in a good position to tackle the fiscal challenges posed by an
ageing population.
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES.12
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...12
Monetary Policy 13
Long-Term Inflation Outlook Subdued13
Switzerland will emerge from an extended period of deflation in 2017, but inflationary pressure will nonetheless remain subdued over
the long term, with headline price growth averaging below that of the eurozone. The Swiss National Bank's struggle to combat deflation
has highlighted the limitations of central bank policy.
TABLE: MONETARY POLICY FORECASTS..13
External Trade And Investment Outlook ... 14
Long-Term Rebalancing On The Cards...14
The Swiss National Bank's decision to scrap its defence of the CHF1.20/EUR floor in January 2015 will expedite a reorientation of the
Swiss economy towards higher private consumption and import demand at the expense of the export sector, leading to downward
pressure on the current account surplus over our forecast horizon. This will be a very gradual process, however, and Switzerland's
current account surplus will remain one of the largest globally over the coming years as a proportion of GDP, which, combined with a
massive net external asset position, implies few risks to external stability.
TABLE: TOP 5 GOODS IMPORTS .14
TABLE: TOP 5 GOODS EXPORTS 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE. 15
TABLE: CURRENT ACCOUNT BALANCE FORECASTS... 15
4 www.bmiresearch.com Business Monitor International Ltd
SWITZERLAND Q4 2016
Chapter 2: 10-Year Forecast... 17
The Swiss Economy To 2025.. 17
Steady Growth To Prevail Over Long-Term17
We expect steady Swiss economic growth over our forecast period despite global macroeconomic headwinds. We forecast
Switzerland's real economic growth to average 1.3% over our forecast period, supported by solid fundamentals underpinning the
domestic economy.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.17
Chapter 3: Political Outlook... 19
SWOT Analysis. 19
BMI Political Risk Index... 19
Domestic Politics. 20
EU To Stymie Efforts To Cap Immigration..20
Switzerland's government faces a period of uncertainty following the UK's vote to leave the EU in June. There are concerns in Bern that
talks between the EU and the UK over Brexit could supersede ongoing Swiss negotiations over an immigration cap. We believe the
government will reach an agreement with the EU over the coming months, conceding some concessions on immigration quotas in an
effort to maintain favourable bilateral deals.
Chapter 4: Operational Risk... 23
SWOT Analysis. 23
Operational Risk Index 23
Operational Risk... 24
TABLE: DEVELOPED STATES - LABOUR MARKET RISK...24
TABLE: DEVELOPED STATES - LOGISTICS RISK..28
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK..31
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK.33
Chapter 5: BMI Global Macro Outlook... 35
Global Macro Outlook.. 35
Brexit To Hit Global Growth.35
TABLE: GLOBAL ASSUMPTIONS.. 35
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %36
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %...37
TABLE: MACROECONOMIC DATA and FORECASTS..39

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