"Monitor Switzerland": Swiss Economy in Limbo Dienstag, 09. Juni 2015 - 09:00

Economists at Credit Suisse believe a further decline in output is quite conceivable for the Swiss economy in the remaining quarters of this year unless a significant devaluation of the franc breathes life into the export sector. The economists nevertheless view the prospect of a broader recession as unlikely given the solidity of the domestic economy, with consumption and the construction sector supported by falling prices, low interest rates, and continued immigration. A clear economic acceleration is equally unlikely, however. The fact is that the recovery in the euro zone is unable to offset January's appreciation shock for the export industry, while companies remain cautious in terms of their investment spending in Switzerland. On that basis, Credit Suisse economists do not expect a significant growth impetus for 2016 and are forecasting below-average economic growth of 1.2%.

Cantons Hit by Corporate Tax Reform III to Very Different Degrees
A profound change in the system of profit taxation – Corporate Tax Reform (CTR) III – is taking shape. A central element of the reform is the abolition of the tax privilege for status companies. But in order to retain their appeal as a business location, a large number of cantons are planning to lower their standard corporate tax rates. As well as location policy, CTR III will affect further policy areas such as the revenue-sharing arrangements among the cantons and the distribution of federal tax receipts. Depending on the structure of the tax base and their tax policy, the individual cantons are affected by CTR III to very different degrees. The greatest need for action in terms of reducing standard corporate income tax arises in cantons with high tax rates and significant receipts from status companies. The share of added value from intellectual property also plays an important role: This could one day benefit from the so-called "license box" that is expected to be introduced as part of CTR III. Another indicator of the need for action on the part of the cantons in relation to CTR III is the respective importance of tax rates. If tax rates are the main trump card for cantons in terms of locational attractiveness, these cantons will need to pay particular attention to CTR III. By contrast, cantons with specific locational advantages such as high availability of skilled labor or centrality are more able to offset the effects of the reform. The situation looks challenging for the two Basels and the Canton of Geneva: According to Credit Suisse economists, they will need to reduce their standard corporate tax rates in order to preserve their appeal to businesses. But as profits that do not currently enjoy tax privileges would also be taxed at a lower rate, this would have considerable knock-on effects on the revenue side.

"Monitor Switzerland": Different Aspects of the Economy in One Publication 

Debate on Saving: Zero Percent on Savings
Despite negative interest rates, the savings rate is not expected to decline. First, real interest rates in Switzerland at just under 1% are not far below their historical average. Second, besides a positive real return that compensates for the deferral of consumption, there are other reasons for saving. They include precautionary saving for unexpected events or specific objectives such as buying a home. The uncertain prospects for retirement provision could further increase rainy-day saving. This is because the low interest rate environment also impacts on mandatory saving in the context of employee benefits insurance. First, it is becoming more difficult to meet the statutory minimum interest rate of 1.75% p.a. without accepting higher investment risks. Second, the technical interest rate used by pension funds to discount the pension promises in their balance sheet could turn out to be too high in many instances. Thus the liabilities would also be higher than previously assumed.

Contact at Credit Suisse Research: Sara Carnazzi Weber, Senior Economist Fundamental Research, tel. +41 44 333 58 82 


Debate on Forecast Quality: Forecasters Lack Courage
Credit Suisse economists examined the accuracy of the growth forecasts of five Swiss banks and three Swiss forecasting institutes since the turn of the millennium. On the one hand, the results of the study are sobering: Forecasters are usually too late in identifying turning points and tend toward excessive caution. According to the survey, there is not much difference between the individual forecasts of banks and forecasting institutes. In contrast to growth forecasts for the US, growth forecasts for Switzerland were too low in two thirds of all cases: The forecasters clearly underestimated the strength of the Swiss "super-cycle" – consisting of immigration, low interest rates, and real estate boom – seen in recent years. On the other hand, analysis of the growth forecasts of Credit Suisse economists also shows that forecasts of banks and forecasting institutes are superior to simple statistical procedures, in particular in their ability to identify turning points.

Contact at Credit Suisse Research: Lukas Gehrig, Economist Swiss Macro Research, tel. +41 44 333 52 07


Sectors: Small, But World-Class
One in ten industrial SMEs and every twentieth service-sector SME say they are a global market leader or "hidden champion." Good framework conditions, a strong education system, as well as an international focus are key reasons why so many Swiss SMEs are world market leaders. A recent survey by Credit Suisse economists of more than 2,000 Swiss SMEs showed not only how many "hidden champions" there are in Switzerland but also the fields in which they operate. The highest percentage of "hidden champions" can be found in the precision instruments industry. In the case of service-sector SMEs, trading and IT stand out in particular.

Contact at Credit Suisse Research: Patricia Feubli, Senior Economist Industry Research, tel. +41 44 333 68 71  


The latest "Monitor Switzerland" also looks at other issues: For example, it shows why five stars do not give hotels sufficient protection against a strong Swiss franc, why in an election year an especially large number of popular initiatives are being launched, and why mortgage interest rates are rising despite the negative interest rate policy of the Swiss National Bank.


"Monitor Switzerland" is published quarterly. The next issue will be published on September 15, 2015.