IMF gives Swiss economy a ‘thumbs–up’
The International Monetary Fund (IMF) expects the Swiss economy to expand by 2% this year thanks to a rosier outlook in the export sector. But it warns the recent anti-immigration vote has caused growth ‘uncertainties’.
Following its regular assessment of the Swiss economy, carried out from March 14-24, the IMF said monetary conditions had improved over the past 12 months but renewed appreciation of the Swiss franc could quickly bring back deflationary pressures.
As a result it recommends the Swiss National Bank (SNB) to maintain its exchange rate floor of CHF1.20 per euro and, in the event of renewed appreciation pressures, says the SNB could introduce negative interest rates on commercial banks’ reserves. Further efforts to increase the bank’s capital would be advisable, according to the IMF.
The central bank set the minimum exchange rate in September 2011 to shield Switzerland from deflation and a recession after investor anxiety caused by the eurozone debt crisis pushed the franc close to parity with the euro. Last week the SNB pledged to defend its cap on the franc, saying the currency remains strong and the global economic recovery is beset by risks.
In its review of the Swiss financial sector and growth prospects, the IMF said the recent approval on February 9 of a popular initiative to curb immigration had increased uncertainty about the medium-term growth prospects. The authorities are working out new immigration quotas for EU citizens, which will take effect within the next three years, after voters backed restrictions.
The IMF said the vote also emphasised the challenges of an aging population. In this regard, it welcomes the current retirement provision reform, particularly the proposed alignment of the retirement age of women to that of men and the introduction of a debt brake for social security funds.
The organisation said it continued to be concerned about risks in the Swiss mortgage market and real estate sector but welcomed the cabinet’s decision to increase the countercyclical capital buffer in January. It added that self-regulation should be tightened and stronger demand-related measures may still be needed.
As part of an in-depth assessment of the Swiss financial sector, the IMF said stress tests showed that the banking sector’s stability has increased considerably since the global financial crisis of 2008-2009. At the same time, it said further reforms were necessary, such as the lowering of leverage ratios of the largest banks, and increasing the number of staff working for the Swiss Financial Market Supervisory Authority (FINMA) in order to ensure ‘more intensive supervision of smaller and medium-sized banks’.
The State Secretariat for Economic Affairs (SECO) recently revised down its growth forecast slightly to 2.2% for 2014 from a previously forecast 2%, and kept its outlook for 2015 unchanged at 2.7%.
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