Switzerland Business Forecast Report Q3 2013

Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
Government Proceeds Cautiously With Financial Reforms
Having long attracted wealthy residents and multinational corporations with favourable tax rates, limited disclosure requirements and
in some cases relatively soft regulation on trading activities, Switzerland is increasingly feeling the pressure from foreign governments
and its own electorate to reform the status quo. Although we expect this pressure to coerce the government into pursuing reforms in the
area of taxation and banking regulation, preventing a wholesale deterioration in international competitiveness of the finance industry will
mean that new legislation will be piecemeal, drawn out and unlikely to fully placate the most vociferous supporters of reform.
TABLE: POLITICAL OVERVIEW 8
Chapter 2: Economic Outlook 11
SWOT Analysis 11
BMI Economic Risk Ratings 11
Economic Activity 12
Recovery Gaining Traction
The Swiss economy will gather momentum in 2013 as the reduction in systemic crisis risks in the eurozone bolsters private sector
confidence and allows for a recovery in investments and international trade. As a small open economy with large exposure to foreign
demand via the current account surplus, favourable global tail winds will help push economic growth towards 1.5% this year. We
continue to warn, however, that the eurozone crisis has not been fully resolved, with further flare-ups to be expected over the medium
term.
TABLE: ECONOMIC ACTIVITY 12
Monetary Policy 13
Monetary Policy: Caught Between A Rock And A Hard Place
Unlike the European Central Bank (ECB) which is fighting to maintain the integrity of the eurozone and prevent capital flight from the
periphery, the Swiss National Bank (SNB) is under pressure to ward off inflows of foreign capital, which have singled out Switzerland as
a relative safe haven in Europe. With short-term interest rates already anchored at zero, further foreign inflows would risk driving up the
real effective exchange rate and damaging export competitiveness, as well as prolonging the current spell of deflation
TABLE: MONETARY POLICY 14
Economic Activity II 15
Modest Inflation Ahead
We expect the Swiss economy to see a return of inflation in 2013 following a prolonged spell of falling prices. This will be underpinned
by an acceleration in economic growth alongside still accommodative monetary policy. We forecast consumer price inflation to average
a modest 0.2% this year.
TABLE: CURRENT ACCOUNT 16
Balance of Payments 17
Global Recovery Looks Set To Drive Surplus Expansion
Switzerland's substantial current account surplus is a blessing in times of strong global demand and somewhat of a curse during a
cyclical downturn. With that in mind, although the eurozone will remain mired in recession in 2013, we expect to see a pickup in global
demand which will provide a welcome fillip for the Swiss economy and the external accounts. Moreover, we continue to project a
sizeable current account surplus for Switzerland over the medium term.
Banking Sector 18
Banking Sector: Stronger Growth Forecast In 2013
The Swiss banking sector weathered the turmoil in the nearby eurozone in 2012 and is now set to post stronger growth in 2013. A
recovery in domestic demand and improvement in the global economic backdrop support our relatively more optimistic assessment for
the industry this year. We forecast total industry assets to expand by 3.5% in 2013 and 4.2% in 2014.
Chapter 3: 10-Year Forecast 19
The Swiss Economy To 2022 19
Steady Growth To Prevail Over The Long-Term
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 MACROECONOMIC FORECASTS 19
Chapter 4: Business Environment 21
SWOT Analysis 21
BMI Business Environment Risk Ratings 21
Business Environment Outlook 22
Institutions 22
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS 22
TABLE: BMI LEGAL FRAMEWORK RATING 23
TABLE: LABOUR FORCE QUALITY 24
Infrastructure 25
TABLE: TRADE AND INVESTMENT RATINGS 25
TABLE: G20 - ANNUAL FDI INFLOWS 26
Market Orientation 27
Operational Risk 28
Chapter 5: Key Sectors 29
Telecommunications 29
TABLE: TELECOMS SECTOR-INTERNET-HISTORICAL DATA AND FORECASTS 30
Other Key Sectors 35
TABLE: AUTOS SECTOR KEY INDICATORS 35
TABLE: PHARMA SECTOR KEY INDICATORS 35
TABLE: TELECOMS SECTOR KEY INDICATORS 36
Chapter 6: BMI Global Assumptions 37
Global Outlook 37
Lowering Our US And Eurozone Growth Forecasts
TABLE: GLOBAL ASSUMPTIONS 37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 38
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 39