IMF praises Swiss economy but urges more reforms

The IMF expects the Swiss ecomony to grow by up to 2.5 per cent this year swissinfo.ch

The International Monetary Fund (IMF) has praised Switzerland for its strong economy, but says more structural reforms are needed if the country is to improve growth in the long term.

Speaking at a press conference in Bern on Monday, IMF experts said Switzerland was enjoying its best economic performance for a decade, and forecast “relatively robust” growth of 2 – 2.5 per cent for this year.

However, they warned that the tempo of structural reform would need to be speeded up if Switzerland is to keep pace with its international competitors and improve its long-term growth performance.

The comments came after 10 days of discussions with the federal administration, the Swiss national bank and members of the private economy.

“The main risk would be if the economic slowdown that appeared to be underway in the United States proved to be pronounced and spilled over strongly onto European and Asian markets,” said Robert Corker, leader of the IMF delegation.

Referring to structural reform, Corker said the priority for Switzerland was to open up the sheltered sectors of the economy. He added that progress had been made with the introduction of new anti-cartel legislation, but the law lacked teeth and should be reinforced by allowing for tough penalties for offenders.

In particular, the IMF said liberalisation of the “last mile” of telephone connections should not be delayed because liberalisation in the telecommunications sector had brought the visible benefit of falling prices.

It urged speeding up of the liberalisation process of the electricity sector, arguing that there would be similar benefits of lower prices and more choice.

The IMF also singled out agriculture as one of Switzerland’s most sheltered markets, saying that reform efforts already underway were “little more” than a welcome start.

It added that protection in Switzerland would remain above the very high levels in the European Union even when the current reforms were completed.

In its annual appraisal, the IMF said the long-term challenge for fiscal policy was to “accommodate” the pressures on expenditure from a rapidly ageing population.

It advised that long-term planning was essential to build consensus within the political system for change and to implement measures to make a meaningful impact on costs. It also warned that a strategy to address rising pressures on health care costs needed to be developed.

Praising recent Swiss monetary policy, the IMF said the Swiss National Bank’s new policy framework had worked well in its first year. It described the explicit focus on medium-term price stability as “appropriate”.

However, it said the bank could do better in communicating its policy to the public.

It argued that more details about the bank’s policy – notably its reading of inflation indicators, forecasting assumptions, and assessments of risks and policy decisions – would help to remove unnecessary uncertainties about policy intentions without compromising the bank’s flexibility to respond to new or unexpected developments.

Commenting on the criticism, the central bank’s chief economist, Georg Rich, said the bank had already indicated in December that it would publish studies explaining the economic models used to make its forecast.

He added that the biggest challenge was to explain in simple language the role played by key indicators in the Bank’s inflation forecasts.

by Robert Brookes