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IMF advises Switzerland on ways to boost economy

The IMF says the Swiss National Bank should keep interest rates low

(Keystone)

The International Monetary Fund has called on Switzerland to take a number of steps to boost economic growth.

In one of its regular assessments of the state of the economy, the IMF said Swiss authorities should keep interest rates low and pursue a flexible monetary policy.

The Washington-based Fund said Switzerland should continue to liberalise its product markets, which was being hampered by a lack of competition.

Assuming a pick-up in external demand, IMF staff projected a modest-paced recovery beginning in the second half of the year, and an economic growth of 0.6 per cent this year.

For next year, growth is projected at just under two per cent, with inflation expected to remain low.

In his reply, the executive director for Switzerland at the IMF, Fritz Zurbrügg said the Swiss authorities largely agreed with the findings, but warned that economic recovery might be further delayed.

The Swiss State Secretariat for Economic Affairs in mid-May cut its growth forecast for 2003 to zero from 0.8 per cent, and to 1.6 per cent (from 1.9 per cent) for next year.

Deflation threat

In its review, the IMF commented that it would be better for Swiss monetary policy to be too loose, rather than too tight, to avoid deflation.

"With inflation risks remaining low, output below potential and signs of recovery uncertain, the current low level of interest rates could be maintained for the foreseeable future," the IMF said in a statement.

However, the report warned that the loosening of monetary policy had been dampened by the rise in the value of the Swiss franc.

"Expansionary"

Zurbrügg concurred with the recommendations, describing the current stance Swiss of monetary policy as "very expansionary", pointing to the latest inflation forecast of the Swiss National Bank published in March.

This predicted that inflation (given unchanged interest rates) would rise to 2.5 per cent at the end of 2005, clearly above the SNB's range of price stability.

Directors of the IMF commented that the Swiss authorities would probably have to rely on quantitative measures, including foreign exchange intervention, to achieve further easing if economic recovery should continue to stall.

Reforms

The IMF stressed that insufficient competition in domestic sectors raised questions about the vitality of growth.

Barriers to the internal market, cartels and sheltered sectors reflected a sluggish pace in product market liberalisation, the report said.

Zurbrügg said the recommendations were "appropriate", adding that any backing in helping to build popular support for structural reforms was welcome.

swissinfo with agencies

In brief

The IMF recommends that Switzerland follows a loose monetary policy and forecasts an economic growth of 0.6 per cent this year.

In its report, it said monetary policy easing has been dampened by the appreciation of the Swiss franc.

It urged Switzerland to further liberalise its product markets, arguing that there is insufficient competition.

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