Core Views
Switzerland will enjoy continued economic expansion through the coming quarters, driven by robust private consumption, stable external demand for Swiss exports and associated gross fixed capital formation. With the housing market seeing buoyant activity, we believe the
Swiss National Bank will begin hiking interest rates in the second half of 2011. We forecast the SNB’s 3-month LIBOR target at 0.75% by end-2011 and 1.00% by end-2012, compared with the prevailing 0.25% policy rate.
In contrast to much of the developed world, Switzerland’s fiscal position is extremely robust. We see little threat to this solid picture over our forecast period given the government’s conservative budgetary policies and the constitutionally binding debt brake. We forecast public debt to average just 25.1% of GDP over the ten years to 2020.
Major Forecast Changes
We have revised up our end-2011 forecast for the franc to CHF1.25/ EUR, from CHF1.35/EUR, due to an exacerbation of the eurozone debt crisis.
Key Risks To Outlook
Downside risk to interest rate forecast. If the situation in the eurozone continues to deteriorate without mitigating action from eurozone policymakers then the franc will continue to gain ground against the euro. Such a development would weigh on Swiss exports and thereby threaten economic growth, giving the Swiss National Bank cause to hold off on tightening monetary policy until 2012.
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Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
Mafia Growth Presents A Challenge
While we see little threat to the country’s extremely stable short-term and long-term political risk profile, increased
activity among foreign organised crime groups within Switzerland poses a challenge for the Swiss authorities
Table: Political Overview8
Chapter 2: Economic Outlook 11
SWOT Analysis 11
BMI Economic Risk Ratings 11
Economic Activity 12
Consumer Outlook Favourable
We forecast continued expansion in the Swiss economy through the quarters ahead, with real GDP forecast to
expand by 19% and 21% in 2011 and 2012 respectively
Table: economic Activity13
Monetary Policy 13
SNB Facing Policy Dilemma
We continue to forecast the Swiss National Bank (SNB) beginning to normalise interest rates in the second half
of 2011
Table: MONETARY POLICY14
Exchange Rate Policy 15
Continued Franc Gains Hard To Envisage
Since our last quarterly report we have revised up our exchange rate forecasts for the franc due to the currency’s
continued move higher in the face of an exacerbation of the long-running eurozone debt crisis
Table: EXCHANGE RATE15
Fiscal Policy 16
Fiscal Position Remains Robust
In contrast to much of the developed world, Switzerland’s fiscal position is extremely robust
Table: FISCAL POLICY16
Chapter 3: 10-Year Forecast 19
The Swiss Economy To 2020 19
Steady Growth To Prevail To 2020
We expect Swiss economic growth to be somewhat below that in the immediate period prior to the 2008 global
financial crisis, as both the US and eurozone economies struggle under the weight of private sector deleveraging
and regional fiscal austerity respectively
Table: SWITZERLAND Long -Term Macroeconomic Forecasts 19
Chapter 4: Business Environment 21
SWOT Analysis 21
BMI Business Environment Risk Ratings 21
Business Environment Outlook 22
Institutions 22
Table: BMI Business And Operation Risk Ratings 22
Table: BMI Legal Framework Rating 23
Infrastructure 24
Table: Labour Force Quality25
Market Orientation 26
Table: Trade And Investment Ratings 26
Operational Risk 27
Chapter 5: BMI Global Assumptions 29
Global Outlook 29
Second Half Risks
TABLE: GLOB AL ASSUMPTIONS29
Table: EMERGING MARKETS AGGREGATE GROWTH30
Table: DEVELO PED STATES REAL GDP GROWTH FORECAST31
Table: REAL GDP GROWTH CONSENSUS FORECASTS31
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