Economy of Switzerland

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The economy of Switzerland is one of the world's most stable economies. Its policy of long-term monetary security and bank secrecy has made Switzerland a safe haven for investors, creating an economy that is increasingly dependent on a steady tide of foreign investment. Because of the country's small size and high labour specialisation, industry and trade are the keys to Switzerland's economic livelihood.

[edit] History

For much of the 20th century Switzerland was the wealthiest country in Europe by a considerable margin. However since the 1990s it has suffered from slow growth, and as of 2005 it dropped to fourth place among European states with populations above one million in terms of nominal Gross Domestic Product per capita , behind Ireland, Denmark and Norway and to the tenth place in terms of per capita GDP at purchasing power parity(see list).

Between 1991 to 1997, Switzerland had the weakest economic growth in Western Europe, averaging no appreciable increase in gross domestic product (GDP). Beginning in 1997, however, a global resurgence in currency movement provided the necessary stimulus to the Swiss economy. It slowly gained momentum and peaked in the year 2000 with 3.0% growth in real terms.

Being so closely linked to the economies of Western Europe and the United States, Switzerland was not able to escape the slowdown felt in these countries. In 2001 the rate of growth dropped to 0.9% and in 2003 the real GDP dropped by 0.5%. The recent economic slowdown has had a noticeable impact on the labour market. The seasonally adjusted unemployment rate rose from 1.6% in June 2001 to 3.7% in October 2004, although well below the European Union (EU) unemployment average of 8.9%.

The economic slowdown finally reached Swiss business in 2003. 1,157 companies declared bankruptcy during the first fiscal quarter, 21.9% more than a year ago. Despite these signs, however, experts from the Swiss Federal Institute of Technology maintain that economic performance will remain solid well into the decade.

This is a chart of trend of gross domestic product of Switzerland at market prices estimated by the International Monetary Fund with figures in millions of Swiss Francs.

[edit] Defining characteristics

[edit] Trade

Apart from industry, trade has been the key to prosperity in Switzerland. The country is dependent upon exports to generate income and on imports for raw materials and goods. With the notable exception of a strict policy of agricultural protectionism, Switzerland has liberal trade and investment policies. An expansive commercial and bank law system makes Switzerland one of the most secure investment places in the world. The Swiss franc is one of the world's soundest currencies, and the country is known for its high standard of Swiss banking and financial services.

The machinery, metals, electronics, and chemicals sectors are known for precision and quality. Together, they account for well over half of Switzerland's export revenues. The country is approximately 60% self-sufficient, taking only 7.5% of its imports from the U.S.

Switzerland ranks 18th among the main trading partners of the U.S. worldwide. The Swiss economy earns roughly half of its corporate earnings from the export industry and about 70% of Swiss exports are destined for the EU market.

The United States is the second-largest importer (9.1%) of Swiss goods after Germany (20.0%). Germany, on the other hand, exports more to Switzerland each year than to all the countries of the former Soviet Union and Eastern Europe combined. In addition, the United States is the largest foreign investor in Switzerland, and conversely, the primary destination of Swiss foreign investment. It is estimated that 200,000 American jobs depend on Swiss foreign investments. Total U.S.-Swiss bilateral trade, nevertheless, decreased by 12% to $17.16 billion during 2002 compared to the previous year.

[edit] Agricultural protectionism

Switzerland is extremely protective of its agricultural industry. High tariffs and extensive domestic subsidisation ensures that the country will remain largely self sufficient agriculturally. According to the Organisation for Economic Cooperation and Development (OECD), Switzerland is subsidizing more than 70% of its agriculture compared to 35% in the EU. The 2007 Agricultural Program, recently adopted by the Swiss Federal Assembly, will increase subsidies by SF 63 million to SF 14.092 billion.

The stringent policy of agricultural protectionism is generally harmful to the workforce. Domestic agriculture will monopolise labour that can be better deployed elsewhere and acts as a shield against beneficial import of labour. Consequently, Switzerland has a high cost of living in not only food but also rents, since much land needed for human occupation is retained by farms. About 40% of Switzerland is covered for agricultural purposes.

[edit] Tourism

Main article: Tourism in Switzerland

Switzerland has a highly developed tourism infrastructure, making it a good market for tourism-related equipment and services. Tourism is the most important U.S. export to Switzerland, contributing about SF 1.5 billion to the Swiss economy every year.

[edit] Workforce

The Swiss economy is characterised by a skilled and peaceful workforce. One quarter of the country's full-time workers are unionised. Labour and management relations are amicable, characterised by a willingness to settle disputes instead of resorting to labour action. About 600 collective bargaining agreements exist today in Switzerland and are regularly renewed without major problems.

With the bankruptcies in 2003, however, the mood is changing. Massive layoffs resulting from the global economic slowdown, major management scandals, and different foreign investment attitudes have strained the traditional Swiss labour peace. Swiss trade unions have encouraged strikes against several companies, including Swiss International Air Lines, Coca-Cola, and Orange. Total days lost to strikes, however, remain among the lowest in the OECD.

[edit] Economic policy

[edit] Terrorism

Through the United States-Swiss Joint Economic Commission (JEC), Switzerland has passed strict legislation covering anti-terrorism financing and the prevention of terroristic acts, marked by the implementation of several anti-money laundering procedures and the seizure of al-Qaeda accounts. Continued relationship with the United States through the JEC has brought the Swiss economy into closer proximity with that of the Western world, with mutualistic goals in terrorism prevention providing the impetus.

[edit] European Union

With exception of agriculture, economic and trade, barriers between the European Union and Switzerland are minimal. In the wake of the Swiss voters' rejection of the European Economic Area Agreement in 1992, the Swiss Government set its sights on negotiating bilateral economic agreements with the EU. Four years of negotiations culminated in Bilaterals, a cross-platform agreement covering seven sectors: research, public procurement, technical barriers to trade, agriculture, civil aviation, land transport, and the free movement of persons. Parliament officially endorsed the Bilaterals in 1999 and it was approved by general referendum in May 2000. The agreements, which were then ratified by the European Parliament and the legislatures of its member states, entered into force on June 1, 2002. The Swiss government has since embarked on a second round of negotiations, called the Bilaterals II, which will further strengthen the two organisations' economic ties.

Switzerland has since brought most of their practices into conformity with European Union policies and norms in order to maximise the country's international competitiveness. While most of the EU policies are not contentious, police and judicial cooperation to international law enforcement and the taxation of savings are controversial, mainly because of possible side effects on bank secrecy.

Swiss and EU finance ministers agreed in June 2003 that Swiss banks would levy a withholding tax on EU citizens' savings income. The tax would increase gradually to 35% by 2011, with 75% of the funds being transferred to the EU. Recent estimates value EU capital inflows to Switzerland to $8.3 billion.

[edit] Institutional membership

Switzerland is a member of a number of international economic organisations, including the United Nations, the World Trade Organization, the International Monetary Fund, the World Bank, and the Organization for Economic Cooperation and Development.

[edit] See also

• Merchant Marine of Switzerland
• Economy of Europe
• Federation of the Swiss Watch Industry FH
• 2000 Watt society

[edit] External links

Wikimedia Commons has media related to:

Economy of Switzerland

• OECD's Switzerland country Web site and OECD Economic Survey of Switzerland
• SWISS MARKET IND
• Schweizerische Nationalbank (Swiss Central Bank)
• Swiss Federal Statistical Office

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