Estudos Económicos
Switzerland

Switzerland

Population 8.5 million
GDP 83,162 US$
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 1.9 2.8 0.9 1.4
Inflation (yearly average, %) 0.5 0.9 0.6 1.0
Budget balance (% GDP) 1.2 1.4 0.5 0.5
Current account balance (% GDP) 9.8 10.5 10.0 10.4
Public debt (% GDP) 42.6 40.5 38.6 37.3

(e): Estimate. (f): Forecast.

STRENGTHS

  • Political, economic and social stability and consensus; role of direct democracy
  • Close relations with the EU
  • International financial centre and headquarters of international groups and organisations
  • Limited sensitivity of exports to foreign exchange due to focus on high technology and quality
  • Surplus public accounts and a large external asset position
  • European crossroads with excellent communication network

WEAKNESSES

  • Small, open and landlocked economy (foreign trade = 116% of GDP)
  • Swiss franc used as a safe haven
  • Highly dependent on trading and financial services
  • High housing prices with rising vacancy rates
  • Banks’ exposure to real estate (85% of domestic loans), with two institutions accounting for half of domestic assets
  • Population ageing offset by immigration (foreign labour makes up 33% of the workforce)

RISK ASSESSMENT

Domestic demand remains the growth factor

Growth is expected to increase in 2020. However, the improvement will be artificial, as it will be due to carryover growth at the beginning of the year and the organization of the Olympic Games and the Euro football tournament, which will generate licence sales for the Switzerland-based IOC and UEFA. Household consumption (53% of GDP) will remain by far the main contributor to growth, supported by continued employment growth, low inflation and the very low cost of credit. In addition, the labour shortage, due to very low unemployment and reduced immigration since 2018, is driving wage growth. Investment (24%) will be the second largest contributor thanks to the purchase of equipment by companies, particularly in the area of automation, and their research and development expenses. Civil engineering financed by the federation, cantons and municipalities should remain on track. Conversely, the construction of rental housing could decline due to saturated supply. On the external front, despite weak demand in all the country’s main markets, the contribution of foreign trade is expected to turn slightly positive simply because of licence sales, which are treated as services exports. Export performances by pharmaceuticals, jewellery, watches, tourism and medical devices will remain satisfactory due to their resilience to less supportive external economic conditions and the strength of the Swiss franc. Events in Hong Kong will merely slow the growth of watch sales. The same should be true for finance and insurance. In contrast, mechanical engineering, precision instruments, and electrical and electronic equipment will have to contend with the poor health of European industry. Imports will once again be driven by strong domestic demand, continuing to generate large deficits in the automotive and clothing sectors. Retail trade is expected to grow modestly in line with the positive trend in employment and moderate immigration. Competition from foreign supermarkets in border areas is expected to remain marginal. Food retail is doing better than other segments, particularly clothing..

 

Solid external and public accounts

Switzerland has a massive current account surplus comprising a surplus in goods (7% of GDP in 2019), as well as in services (3%), the latter being mainly generated by finance, sports licences, patents and tolls. Transfers from foreign workers, whether Swiss-domiciled or cross-border (20% of the total), plus Switzerland’s remittances to international aid agencies and programmes are balanced by income from Swiss investments abroad. Even when international trade in precious metals (gold), gemstones, artworks and antiques (4%) is taken out, the surplus is still 6.4%. In addition, recurrent surpluses have made it possible to accumulate significant foreign assets, to the point that Switzerland has a net external asset position equivalent to 128% of GDP. Swiss households are at the origin of this, through the savings that they invest in retirement plans. Meanwhile, to prevent the franc from appreciating, but also to support activity and counter deflationary pressures, the Swiss National Bank (SNB) is applying a highly accommodative monetary policy, with the key interest rate set at -0.75%. This rate also applies to banks’ sight deposits held with the SNB, although exemption thresholds result in an actual rate of around -0.2%. In addition, the SNB buys foreign currency assets (mainly government bonds in euros and dollars) as required. As a result, its balance sheet is equivalent to 120% of GDP and foreign currency reserves stand at more than two years of imports.

 

Going beyond the fiscal rule adopted in 2003 by the federation and replicated by most cantons, the public accounts show a structural surplus. In the event of a significant economic deterioration, the federal and cantonal authorities, based on a vote by the representative assemblies, would have access to significant fiscal stimulus capacity. The public debt is divided equally between the federation, on the one hand, and the cantons and municipalities, on the other. Its cost is extremely low with a negative yield (-0.8% at the end of 2019) on 10-year issues. Net of claims held by public authorities, the debt is almost zero. Budget margins will remain under little pressure.

 

Despite a breakthrough for greens, right-wing and centre parties remain in the majority

The October 2019 elections saw a historic breakthrough for left-wing environmentalists (PES), who won 28 seats out of 200 (+17) and the liberal green party (PVL), which took 16 seats (+9), at the expense of traditional right-wing and left-wing parties, namely the nationalist conservatives (SVP) with 53 seats (-12), social democrats (PS) with 39 seats (-4), plus the liberal democrats with 29 seats (-4) and Christian democrats with 25 seats (-2), both in the centre-right. The shift reflects the fact that the climate question has eclipsed immigration as the key issue. Nevertheless, the right and the centre remain in the majority in the National Council, as well as in the Council of States and the Federal Council (government), of which seven ministerial seats are voted on by both chambers, taking into account the results of the parties, the various regions and linguistic communities. The free movement of people and the institutional framework agreement with the EU will be voted on in 2020.

 

 

Last update: February 2020

Payments

Bills of exchange and cheques are not commonly used in Switzerland, due to prohibitive banking and tax charges. The stamp duty on bills of exchange is 0.75% of the principal amount for domestic bills and 1.5% for international bills.

Commercial operators are particularly demanding regarding the formal validity of cheques and bills of exchange as payment instruments.

Domestic and international payments are commonly made by bank transfer − particularly via the SWIFT electronic network to which the major Swiss banks are connected. SWIFT provides rapid and efficient means of processing of payments, at low cost.

 

Debt collection

The Swiss legal system presents technical specificities, notably:

  • the existence of an administrative authority known as the Enforcement and Bankruptcy Office (Office des poursuites et des faillites / Betreibungs und Konkursamt / Ufficio di esecuzione e fallimenti) in each canton, with several offices at local government level which are responsible for executing court orders. Their functions are regulated by federal law. Interested parties can consult or obtain extracts from the Office’s records;
  • a new, unified civil procedure code, created by a commission of experts and approved by the Federal Council, became effective in 2011. This code entailed the repeal of the 26 cantonal procedure laws which were hampering the efficiency of the judicial system. Nevertheless, lawsuits require the assistance of a lawyer who is familiar with the court organisation in the jurisdiction where the case is has been initiated, as well as with the language to be used in the litigation process (French, German or Italian).

 

Amicable phase

The debt collection process commences with the issuing of a final notice, preferably by recorded delivery (making it possible to accrue overdue interest). The notice requests the debtor to pay, within two weeks, the principal amount due, along with overdue interest calculated at the legal rate of 5% (unless otherwise agreed by the parties).

 

Legal proceedings

If payment is not forthcoming, the creditor can submit a signed and completed petition form (réquisition de poursuite) to the Enforcement and Bankruptcy Office. This Office then serves the debtor with a final order to pay within 20 days, effective from the date of notification of the petition.

While very easy to use by creditors, this procedure nonetheless permits debtors to oppose the order within 10 days of being served, without having to specify grounds. In such cases, without unconditional proof of debt to cancel the debtor’s opposition, the only recourse for creditors is to seek redress through a formal legal action.

Before commencing formal legal action, it is mandatory to proceed to mediation or conciliation before a Justice of Peace. This excludes disputes falling within the jurisdiction of the Commercial Court of Zurich, or cases where both parties have agreed to ignore these proceedings and the claim is higher than CHF 100,000.

Legal proceedings entail initiating a formal (and now unified) procedure, comprising written and oral phases, with the possibility of examining witnesses during a court hearing. These procedures can last from one to three years, depending on the canton.

Conversely, where a creditor holds unconditional proof of debt signed by the debtor (any original document in which the buyer recognises his debt – such as a bill of exchange or a cheque), he may request the temporary lifting of the debtor’s opposition (main levée de l’opposition), without having to appear before the court. This is a simplified procedure, which is quick and relatively easy to obtain, and in which the court’s decision is based upon the documents submitted by the seller.

Once this lifting order has been granted, the creditor has 20 days in which to  refer the case before the judge to obtain the debt’s release (libération de dette) and subsequently obtain an executory order. Once the court hands down a final ruling, the Enforcement and Bankruptcy Office delivers an execution order or a winding-up petition (commination de faillite). This winding-up petition enables the creditor to send the court a request for bankruptcy. Upon receipt of this request, the court will fix a hearing and send a written notice to attend to both parties. If no payment is effected by the debtor and the creditor does not withdraw his request, the court will declare the debtor company bankrupt.

Either a court of first instance or a district court hears legal procedures. Commercial courts, presided over by a panel of professional and non-professional judges, exist in four Germanic cantons: Aargau, Berne, Saint-Gall, and Zürich.

Once an appeal has been lodged with the cantonal court, as a last resort for claims exceeding CHF 30,000, cases are heard by the main federal judicial institution: the Swiss Federal Court (Tribunal fédéral Suisse / Schweizerisches Bundesgericht / Tribunale federale svizzero), which is located in Lausanne.

Enforcement of a Legal Decision

Domestic judgments are enforceable once final. The court typically awards compensatory damages and orders to seize and sell assets. Punitive damages are not granted.

Switzerland’s domestic courts rapidly enforce court decisions falling under the scope of bilateral or multilateral reciprocal recognition and enforcement treaties − such as those issued in EU countries or under the Lugano Convention (which concerns Norway, Denmark & Iceland). Decisions rendered outside Europe are obliged to follow Swiss exequatur proceedings.

Insolvency Proceedings

Restructuring proceedings

Restructuring proceedings (Nachlassverfahren) can be initiated either by the debtor or the creditor. The administrator takes the necessary measures to prepare for the creditor and court approval of the composition agreement. An inventory is then taken, where all assets are valued. Approval of the agreement requires the affirmative vote of a quorum of either a majority of creditors representing two-thirds of the total debtors, or a quarter of the creditors representing three-quarters of the total debt. Once approved, the agreement must be confirmed by the Court. It then becomes valid and binding on all creditors of claims subject to the agreement.

 

Bankruptcy proceedings

A company may be declared bankrupt by the court and placed into bankruptcy proceedings if a creditor has successfully requested this, following a debtor’s declaration that it is insolvent. The court will determine whether summary or ordinary proceedings should be applied, or whether bankruptcy proceedings will go ahead (if the assets are insufficient to cover the expected costs of proceedings). The Receiver then draws up an inventory. Summary proceedings are ordered if the proceeds of the assets are unlikely to cover the costs of ordinary proceedings. In this case, there are no creditors’ meetings and the bankruptcy office will proceed to the liquidation and realisation of the assets, without the participation of the creditors.

If ordinary bankruptcy proceedings apply, the receiver publishes a notice of bankruptcy instructing all creditors and debtors to file their claims and debts within 30 days. This notice invites creditors to a first meeting (where they may appoint a private receiver instead of the state bankruptcy office) and a creditors’ committee. A second meeting will be convened for the commencement or continuation of claims against third parties and to agree the method for realisation of the assets belonging to the bankruptcy estate.

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