Switzerland

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The Stable Swiss Economy: An Overview

Switzerland’s economy has long been renowned for its impressive and highly developed service sector, with its prestigious banks gaining the country an impressive reputation in its financial industry. Our overview briefly introduces the major sectors, strengths, and issues of the Swiss economy.
  • Switzerland has a strong economy, due to its long-term monetary security, neutral political stance, low value-added tax rate, and highly qualified labor force.
  • The economy is dominated by the banking, insurance, manufacturing and tourism industries.
  • Nestlé, Lindt, Swatch, and Rolex are among the many prestigious Swiss brands which contribute to the country’s economic success.
  • Removing the currency cap on the Swiss franc in 2015 instigated global economic upheaval, including for Swiss corporations.

 

The Swiss economy has a distinguished reputation worldwide thanks to its strength and stability, which are partly due to its neutral political stance. In fact, the country enjoys the fifth-highest GDP per capita in the world. 

Given the country’s location right in the heart of Europe, the European Union is very important to Switzerland’s foreign trade. Therefore, while the country’s currency is the Swiss Franc (CHF), Switzerland relies heavily on the economic climate of various countries within the Eurozone: 57% of Swiss exports are purchased by states within the euro area. Germany is its largest trading partner, with a 20% share of exported goods.

Switzerland also boasts a fairly low unemployment rate, standing at 4.6% in late 2016. It’s hardly surprising that its citizens enjoy an above-average quality of life.

The Primary Sector: Agriculture in Switzerland

Although Switzerland is home to many scenic mountains and meadows, the country is not particularly well known for its agricultural industry.  The latter contributes less than 1% to the GDP, with annual revenues of around 10 billion CHF.

However, local agriculture does provide around 60% of the food supply for the population, simultaneously preserving the country’s iconic landscape.

Nonetheless, the number of farms and employees continues to decline, and the agricultural sector now largely depends on government subsidies. 

The Swiss Secondary Sector: Manufacturing

Switzerland’s secondary sector relies heavily on import and export. Surprisingly, despite the country being home to well-known and hugely successful corporations such as Nestlé, Rolex, and Swatch, most businesses in Switzerland are small and medium-sized enterprises (SMEs) with a staff of fewer than 250 each. SMEs employ around 70% of the Swiss workforce not employed by the state. 

A large part of the highly qualified workforce is employed in the country’s main manufacturing industries — electrical and mechanical engineering. However, the recent removal of the currency cap on the Swiss franc has meant that the sector has suffered, as corporations struggle to export their products to businesses in the Eurozone. Other prominent sectors include watch-making, the pharmaceutical and chemical industries, and energy. The hydropower market alone is now worth 2 billion CHF.

The Tertiary Sector: Switzerland’s Service Sector

The service sector is led by Switzerland’s banking, insurance, and tourism industries. Swiss banks make up a substantial part of the service sector, accounting for 6% of the country’s GDP and employing 5.8% of the workforce. The most prominent Swiss banks are Credit Suisse and UBS. The latter also ranks as one of the world’s most important private banks, with assets of 1.738 billion USD under management in 2015 — the biggest player in Switzerland’s private wealth management industry. Swiss banks are also widely known for investing in young employees, with over 4,000 apprenticeships being available to Swiss youth in 2016.

You can find out even more information on Switzerland’s financial sector in our article on Swiss banking.

Trouble in Paradise: Dropping the Currency Cap

Switzerland dominated the headlines on 15 January 2015, when the Swiss National Bank (SNB) announced that it would be removing its cap of 1.20 CHF on the exchange rate with the euro. On this day, the euro lost 13% of its value against the Swiss franc.

The decision was made following the euro’s decline in value against other major currencies in the course of 2014, which had, in turn, caused the franc to decline as well during a period of significant financial uncertainty. The anticipated quantitative easing policy of the European Central Bank would have meant that the euro would be further devalued, hypothetically forcing the SNB to print more francs to maintain the fixed exchange rate. Given that quantitive easing entails the introduction of new money into the money supply, many Swiss nationals worried that Switzerland’s large foreign-exchange reserves could cause hyperinflation, although this fear was possibly unfounded.

In any case, removing the fixed exchange rate caused a strong Swiss franc, able to avoid recession. However, ATMs across the country were promptly drained of euros as Swiss nationals rushed to enjoy the lower prices across the border.

The strong franc has also deterred European travelers from visiting Switzerland due to high prices, which has particularly affected the Swiss tourism industry. Similarly, sectors such as mechanical engineering and electronics were hit hard as well, due to them deriving a substantial amount of their sales from exports to the Eurozone. As a result, sourcing materials overseas has become increasingly important for Swiss companies.

 

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