The decline in the Swiss economy is not going to be as bad in 2009 as some observers have thought, says an International Monetary Fund (IMF) expert.
Speaking at a presentation of the IMF's latest European forecast in Zurich, Luc Everaert said this was surprising given the importance of the financial sector to the Swiss economy. However, overall Europe's recovery will be slow.
Everaert, assistant director of the European Union policies and regional studies division at the Washington-based IMF, is no stranger to Switzerland – he did his PhD at Geneva's Graduate Institute of International Studies. He was the guest of the KOF Swiss Economic Institute in Zurich on Monday.
Experts say Switzerland's export-driven economy has been dragged down by decreasing international demand and by its banks becoming entangled in the financial crisis. One of its biggest, UBS, had to be bailed out by the government.
The Swiss economy has also received two stimulus packages, with a third having been approved at the end of September by parliament.
The European Union is Switzerland's most important trading partner.
swissinfo.ch: What is the IMF's prognosis for Europe?
Luc Everaert: The good news is that we see the end of the recession and that we can look forward to an increase in growth next year. On the other hand, we think that the recovery is going to be quite slow and gradual.
swissinfo.ch: Why is the recovery not any stronger?
L. E.: The environment is still quite uncertain so it's difficult to be very precise, but I see three aspects that may make it slower.
One is the financial sector where you essentially have to repair balance sheets and which may not be able to support the economy with a lot of credit.
The other is the adjustment of global imbalances and the fact that countries are now facing different adjustments – some of them have to deal with asset bubbles, some of them with competitiveness problems – so it will be difficult to have a cohesive recovery.
The third aspect is that unemployment is still rising and this may affect people's expectations about the future and it might dampen confidence and lead to slower consumption growth than otherwise.
swissinfo.ch: How does Europe compare with the rest of the world?
L. E.: I don't think Europe can benefit as much from the dynamic recovery in inventories and exports as in Asia because it has some structural rigidities and it also has had to be more careful on fiscal policy because there are problems with high debt levels in Europe. Therefore we do not have as much room to stimulate the economy.
But in general, it's a fairly similar story, just a bit slower than the rest of the world.
swissinfo.ch: How does Switzerland fit in?
L. E.: The Swiss economy has been doing relatively well. I think most observers see that in 2009 the decline in the Swiss economy will not be as severe as in some of its major trading partners like Germany and other countries.
It's a bit of surprise because we thought that, with the financial sector being so important and affected in Switzerland, the downturn would be actually quite strong. But if you look ahead I think the path for Switzerland is actually quite similar to the rest of Europe. In fact our forecast is the same for the Euro area as for Switzerland, around 0.5 per cent growth next year. We think that the financial sector will be important for the future and there we will see a little bit of a drag on Swiss growth.
swissinfo.ch: What would your recommendations be for Switzerland?
L. E.: There is still a need to maintain fiscal policy support in 2010. We should not withdraw fiscal stimulus too soon. The Swiss authorities are very well aware of the need to clean up the banking system and progress is being made there, but if we can go faster that would be better.
An issue on which Switzerland can collaborate, but is not in the driver's seat, is the global regulatory environment for the financial system that has to be put in place for the Swiss financial system to adjust to a new business model. But this is not just a job for the Swiss authorities, it's more of a global issue.
Isobel Leybold-Johnson in Zurich, swissinfo.ch
The IMF's report into the global economy, which is published twice a year, was released on October 1.
It forecast gross domestic product (GDP) rising around 0.3% the 16-country eurozone in 2010, after a contraction of 4.2% in 2009.
The IMF projects Swiss neighbour Germany, the eurozone's largest economy, will grow by 0.3% in 2010 after a drop of 5.3% in 2009. France is expected to grow by 0.9% in 2010 following a 2.4% output slide in 2009. Both France and Germany are officially out of recession after figures showed their economies posting modest growth in the second quarter. Italy will grow by 0.2% in 2010 following a 5.1% contraction in 2009.
Spain and Ireland are the two economies hardest hit by collapses in housing and construction. Joblessness is expected to hit 20.2% and 15.5% respectively.
The Swiss jobless rate rose to 4.1 per cent over the second quarter of 2009, provisional findings revealed by the Federal Statistics Office showed at the end of September. One year earlier, the rate stood at 3.4 per cent.
The Swiss Economic Institute, in its predictions released at the end of September, expects GDP to contract by 3.4% for the whole year 2009 (3.3% forecast in June).
However, the economy is predicted to expand by a marginal 0.1% next year and 1.4% in 2011.
Government figures from the State Secretariat for Economic Affairs (Seco) have predicted a 1.7% drop for 2009 and a rise of 0.4% for 2010.