Introduction
The major focus of this report is the Swiss economy. This report involves a wide range of different factors (PEST analysis) that have influenced the business environment in Switzerland. And this report also provides Swiss economy outlook in 2009 and 2010.
Introduction to Switzerland
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Note: Retrieved from http://www.travelslang.com/zTravelGuidesSwitzerland.html
Area: 41,285 sq. km
Cities: Capital--Bern (population about 123,000)
Population (year-end 2009 est.): 7.8 million
Languages: German 63.7%, French 20.4%, Italian 6.5%
Ethnic groups: Mixed European
Religions: Roman Catholic 42%, Protestant 33%, Muslim 4.3%, others 5.4%
Work force (4.0 million in fourth quarter 2009): Agriculture and forestry--4.0%, Industry and construction--23.5%, Services sector and government--72.5% (Bureau of European and Eurasian Affairs, 2010)
Currency Exchange Rates: CHF 1.00 = USD 0.95 = EUR 0.74 = CNY6.5
Swiss Political Stability
"We will attack no one, participate in no war, will make no alliance, and will defend ourselves." (Rijn, 2001)
The country has been neutral since 1515. By staying out of international conflicts and maintaining neutrality, Switzerland has peaceful and stable political environment.
In terms of the government, only the seven-member Federal Council consists of professional politicians. Each year a different member becomes Federal President, and his name is hardly known in Switzerland. The Swiss Federal government has always been weak and the Swiss want to keep it that way. The Swiss people have power over their federal government through the process of the referendum and initiative.
As to the political environment in Switzerland, the relationship between Switzerland and European may be the focus. Switzerland is not the member of European Union, but follows a bilateral approach in its European policy. Switzerland and the EU are more than just neighbors. Politically, there are many mutual interests via the bilateral path for Switzerland, such as in the areas of environmental matters, refugee policy or the fight against organized crime. Swiss cooperation with the EU has positive effects on the stable political environment.
Swiss Economic Stability
When most people think of Switzerland, their mind may fill with pictures of the Alps, clocks, chocolates and perhaps the sound of alpenhorn music. However, Switzerland is not primarily a rural, agricultural economy. Switzerland's economy depends on highly qualified workforce and high technology. The main industry sectors include microtechnology, hitech, biotechnology and pharmaceuticals, as well as banking and insurance. To be noticed, the insurance industry plays an important role in the Swiss economy. Swiss insurers employ over 47,000 people in Switzerland and 78,000 abroad (status 2007). Numerous insurance companies have set up or acquired branches in the EU. (Integration Office FDFA/ FDEA, 2009)
Consider these facts about the Swiss economy in 2010:
1. GDP value
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2. GDP growth
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3. Inflation
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4. Unemployment
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5. Balance of trade
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Note: June 2010, TradingEconomics.com
Seen from the above graph, a balance of trade surplus is 1.8 Billion CHF in June of 2010.
6. Consumer confidence
Switzerland-Consumer-Confidence-Chart-000001.png
Note: June 2010, TradingEconomics.com
7. Current account
Switzerland-Current-Account-Chart-000001.png
Note: March 2010, TradingEconomics.com
Switzerland enjoys a 19.5 Billions CHF current account surplus.
From the above graphs, we could find that the Swiss economy experiences a strong comeback in 2010 driven by a sharper-than-expected rebound in global demand although Switzerland had tough economy with the shock of global economic crisis. (TradingEconomics, 2010)
Social and cultural environment in Switzerland
The key to Swiss success is found in the highly qualified people. Swiss citizens are hardworking, even strict, severe and disciplined with humor, intelligence and imagination. Their hard work creates the strong and wealthy Switzerland.
Under the Bilateral Agreements, Switzerland and the EU cooperate in new areas such as public health and free movement. Now many Swiss and EU citizens benefit from the freedom to look for employment in Switzerland and European countries. And many companies also benefit from free movement as the freedom increases market opportunities and expand their market. Many highly qualified and international employees could satisfy different demand in Swiss and EU labor market. For companies, they could recruit sufficient and suitable personnel without barriers of nations. The free social environment has a positive effect on the development of Switzerland.
With respect to cultural environment, Switzerland creates open cultural environment. Switzerland appeals Lifelong Learning Programme to improve opportunities and quality in the field of education and vocational training. And education and vocational training could help Switzerland improve prosperity.
Technological environment in Switzerland
The Swiss economy depends on technology and inventions to a major extent. Research, discoveries and development of new products are an important prerequisite of Swiss success. Switzerland's important resource is brain power although Switzerland has almost no natural resources - no gold, no oil and no coal.
From trade of Switzerland, we find that Switzerland mainly exports medicinal and pharmaceutical products, watches and clocks, machine tools and textile machinery. The development of technology and manufacture makes great contribution for the Swiss economy.
Monetary conditions in Switzerland
The Swiss National Bank (SNB) is maintaining its expansionary monetary policy. The Swiss franc has appreciated against Euro and depreciated against US dollars at the same time, which could lead to deflation to some extent. So the SNB should take all measures to ensure price stability.
Interest rates in Switzerland remains low because of the high savings rate and large inflows of foreign money. The low interest rate on capital market can reflect a higher demand for Swiss government bonds and attract some private companies to invest.
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In June 2010, Switzerland demonstrated the data of KOF in May reached to 2.16, higher than 2.02 the economist anticipated, which set the record of the maximum level among previous 40 months. That suggested that the Swiss economic resurgence would maintain stable for a quite long period in 2010. And the Swiss Customs announced that in April the trade account gained CHF2,022,000,000, which provided an evidence for the Swiss economic resurgence. The good economic data could represent the strong and safe Swiss Franc.
Investment Climate
Considering political neutrality, open social environment, developed technological environment and stable economic environment, Switzerland is one of the most attractive countries for foreign direct investment.
Switzerland is located in the middle of Europe. That is an advantageous location for investors. And Europe is the most important economic partner. What is surprised to the world is that Switzerland has high export rate, which occupies high percentage of gross domestic product. Today the EU is Switzerland's most important trading partner. Two thirds of Swiss exports are to the EU, four fifths of imports come from the EU. In 2008, Switzerland is the third-largest market for EU products, with the USA, Russia and China. It ranks above China and below the USA and Russia.
Switzerland remains low inflation and increasing consumer confidence which indicates that Switzerland has stable money supply. And its high financial responsibility reflects the Swiss respect for money and good work ethic. The above shows that Switzerland has really good investment environment. By far over 6,500 foreign companies have invested business in Switzerland and nearly 90% of them prefer to choose Switzerland as their business location again.
Switzerland's economic outlook
In 2009, the World Economic Forum's Global Competitiveness Report demonstrated that Switzerland is the most competitive country in the world ahead of the U.S. Switzerland plays a very important role in the recovery of global economy.
Switzerland is a small economy, which relies mostly on its exports. Despite Swiss strong economic position, the weakening of the Euro with respect to the Swiss franc decreased Swiss exports. Swissmem -- service center for the Swiss mechanical and electrical engineering industries announced that in 2009, the exports reduced by 23% in the first half of the year compared to the same period in 2008. And the order also reduced by 1/3. Therefore the decrease of exports may lead to the increase unemployment rate in 2010. Some large-scale manufacturing companies such as Sulzer and George Fischer suffered the tough experience. And what is worse, Oerlikon even proposed the reorganization plan to the creditor in December.
In November, the United Bank of Switzerland (UBS) lost more than 500,000,000 in the quarter. The Swiss Finance Management Industry prepared to take strict international measures to control the financial risk with UBS. Many countries have closed saving policies for taxation. And this measure resulted in shrinking value of European and American property.
Swiss economy is benefiting from the recovery of global economy. Switzerland has stable economy. National Bank of Switzerland (the Swiss Central Bank) set low interest rate and maintained the stable exchange rate. Swiss consumer market is also very stable, which created the domestic demand for the development of Swiss economy. To be mentioned, Switzerland's real estate market has resisted the periodic fluctuation while other real estate in other countries were in dispirited situation.
In Switzerland, the economic recovery has continued. In the first quarter of 2010, real GDP rose by 1.6% on an annualized basis, and was 2.2% above the year-back quarter. (Hildebrand) In 2010, there is a stream of positive news in Switzerland. Constructions and consumer expenditure stimulate the economic activities and the unemployment rate has fallen slightly. The SNB anticipates that the real GDP could increase by 2% this year.
Discussion
Compared with other countries, Switzerland does not need economic stimulus plan. And Switzerland's government debt should be controlled in certain range. If every year CHF1,500,000,000 saved could relieve burdens for the national finance. However, considering the latest 2-year financial problems, the expert expressed the prospect would be unoptimistic: economists forecast that in 2009 gross national product will shrink to 1.6%. Some economists worried that the plan aimed at stimulating the Swiss exports would possibly expire in 2010.
The world-famous investor and writer Nicolas Taleb forecasts that the finance will collapse. He thought that the world would start a new serious inflation. He thought that Switzerland's economic foundation is unstable as to the present global economy. Although the Swiss domestic financial situation is better than many other countries, there is still a lot of uncertainty, which increases economic risks.
