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Switzerland Business Forecast Report Q3 2014

  • April 2014
  • -
  • Business Monitor International
  • -
  • 38 pages

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 exchange rate forecasts to CHF1.24/EUR and CHF1.27/EUR from CHF1.26/EUR and CHF1.29/ EUR respectively.

Table Of Contents

Switzerland Business Forecast Report Q3 2014
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
Immigration Quota Vote Risks EU Relationship 8
Swiss voters have supported a referendum bill to cap the level of immigration. Although the government does not support immigration
quotas, it is obliged to implement the new law as a result of Switzerland's direct democracy system which enables the public to initiate
referenda. The move has already sparked a backlash from Brussels, with Switzerland's current level of access to the single market at
risk of being restricted. Moreover, we warn that over the longer term, foreign investors may be deterred from relocating to Switzerland if
their ability to attract skilled labour is impeded.
table: Political Overview 8
Chapter 2: Economic Outlook 11
SWOT Analysis 11
BMI Economic Risk Ratings 11
Economic Activity 12
Recovery Will Gain Momentum In 2014 12
Despite a slowdown in the fourth quarter of 2013 - underpinned by a sharp increase in imports - we stick with our fundamentally bullish
view for the Swiss economy in 2014 and over the medium term. We believe that robust economic growth will be underpinned by a
recovery in international trade, which will bolster Switzerland's current account surplus, and a ramp up in domestic consumer spending.
While adverse developments in the nearby eurozone will remain a risk to our outlook, we believe that these risks have receded sharply.
Economic Activity II 14
Deflation Runs Its Course 14
Despite a lurch back into deflation in February, we believe that Swiss prices will find a firmer footing over the medium term. A
combination of robust economic growth, loose monetary policy and a very modest multiyear depreciation of the Swiss franc will lay
the foundations for a gradual build up in inflationary pressures. However, we warn that at this stage Switzerland is still vulnerable to
a deflationary shock, with falling export prices in Germany and China, as well as a correction in global commodity markets, being a
particular cause for concern.
Exchange Rate Policy 15
CHF Depreciation Delayed By Russia-Ukraine Crisis 15
During the period of intense financial market turmoil in the eurozone in 2012, Switzerland became a key destination for safe haven flows
given the relatively benign economic and political environment and depth and liquidity of Swiss markets. With the Ukraine-Russia crisis
still simmering, the Swiss franc is coming under renewed pressure. Indeed, having weakened at the beginning of the year to CHF1.24/
EUR, the franc has since appreciated to CHF1.22/EUR and is flirting with the de facto ceiling previously introduced by the Swiss
National Bank (SNB) to prevent a continued and destabilising appreciation of the Swiss currency. With few signs that Ukraine-Russia
crisis will suddenly and decisively deescalate, we expect the CHF to remain offered in the coming months.
table: Currency Forecast 15
Balance Of Payments 17
Current Account Surplus Over Medium Term 17
We expect the Swiss current account to remain firmly in surplus over the medium term. This will be predicated on continued global trade
recovery in general, and in eurozone demand more specifically. However, we also believe that the Swiss consumer will play a more
significant role in driving growth over the medium term, with demand for imports curbing continued expansion of the current account
surplus on a relative basis.
Banking Sector 19
Recovery Under Way 19
Our relatively positive outlook for the Swiss banking sector mirrors a similarly constructive view for the broader economy. We see
opportunities for banks to boost profitability in the retail market, given our assumption that consumer spending will become a more
important driver of economic growth over the medium term. We forecast the banking sector to expand broadly in line with GDP and
therefore expect the relative size of the industry to remain unchanged.
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.
tab le: 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
Infrastructure 27
Market Orientation 29
Operational Risk 30
Chapter 5: Key Sectors 31
Telecommunications 31
tab le: Telecom Sector - Fixed Lin e - Historica l Data And For ecasts 32
tab le: Telecoms Sector - Int ern et - Historica l Data And For ecasts 32
tab le: Telecoms Sector - Mobi le - Historica l Data And For ecasts 33
Other Key Sectors 35
tab le: Pharma Sector Key Indicators 35
tab le: Infrastructur e Sector Key Indicators 35
tab le: Autos Sector Key Indicators 35
Chapter 6: BMI Global Assumptions 37
Global Outlook 37
Chinese Economy Under Pressure 37
Tab le: Globa l Assumptions 37
Table: Developed States, Real GDP GrowtH, % 38
Tab le: Em erging Mark ets , Real GDP Growth , % 39

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