Swiss economy faces better future

Reforms undertaken by Switzerland over the past decade have created the conditions for better economic growth, according to the latest report on the Swiss economy by the Organisation for Economic Co-operation and Development (OECD).

The report, released in Paris on Thursday, says Switzerland’s economic growth in 2000 will be the strongest for 10 years “and is likely to be followed by robust activity in 2001 and 2002”.

However, it warns: “Against the background of lacklustre growth in total factor productivity in the 1990s[,] estimates of Switzerland’s longer-term potential growth prospects must necessarily be cautious.”

The OECD survey says the pace of structural economic reforms could be crucial in determining whether Switzerland is able to meet its growth potential in future. It says Switzerland is keen not to fall behind the European Union, but that many reforms do not go far enough.

In the telecommunications sector, for example, the report says partial liberalisation at the start of 1998 has reduced prices for households and business to below the OECD average in many sectors.

However, the local loop (the “last mile” to subscribers) remains a monopoly, meaning that Swiss customers pay above-average prices for local phone calls (and hence Internet access).

The OECD also urges Switzerland to speed up liberalisation of the electricity market. The Swiss parliament has amended draft legislation on the issue to bring the pace of liberalisation in line with the EU, but the OECD says this is still very slow compared to other countries.

“Progress is also slow in the implementation of the Domestic Market Act,” the survey says. That aims to allow goods and services to be traded throughout the country on the same terms and conditions.

The OECD says reforms to postal and rail services have left them dominated by the state-owned Swiss Post and Federal Railways.

A large part of the report is devoted to the problems and economic strains linked to the ageing of the population. The OECD says Switzerland is coping better than most. “Switzerland stands out as being relatively well-prepared to deal with the fiscal problems of ageing,” it says.

The reasons are partly that Switzerland has already taken steps to increasing the retirement age for women, and that Swiss workers still rarely opt for early retirement.

But the report notes that Switzerland’s pension system is less reliant on the state than in many other countries. It is a three-pillar structure in which the state provides a very basic safety net which is backed up by mandatory private savings and a third tier of voluntary private savings.

It says the official projection of a 2.3 percentage point rise in pension spending as a ratio of Gross Domestic Product is based on conservative growth assumptions and is probably overly pessimistic.

by Malcolm Shearmur