switzerland - iuj

COUNTRY PROFILE

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EIU Country Profile 1999-2000 © The Economist Intelligence Unit Limited 1999

Comparative economic indicators, 1998

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© The Economist Intelligence Unit Limited 1999 EIU Country Profile 1999-2000

Contents

Switzerland

3 Basic data

4 Political background4 Historical background5 Constitution and institutions7 Political forces9 International relations and defence

13 Resources13 Population14 Education15 Health15 Natural resources and the environment16 Transport and communications18 Energy provision

19 The economy19 Economic structure20 Economic policy23 Economic performance25 Regional trends

25 Economic sectors25 Agriculture and forestry27 Manufacturing28 Construction29 Financial services32 Other services

33 The external sector33 Trade in goods34 Invisibles and the current account35 Capital flows and foreign debt35 Foreign reserves and the exchange rate

36 Appendices36 Sources of information37 Reference tables37 Resident population by age and nationality37 Total employment38 Unemployment38 Transport38 Telecommunications39 Production, trade and consumption of fuels and electricity39 Government finances40 Money supply40 Interest rates40 Gross domestic product

August 9th 1999

2


41 Gross domestic product by expenditure41 Prices and earnings42 Agricultural production42 Industrial production43 Construction43 Swiss Stock Exchange43 Retail trade turnover43 Tourism receipts44 Composition of trade45 Main trading partners46 Balance of payments, IMF series46 Balance of payments, national estimates47 Foreign reserves47 Exchange rates

Switzerland 3


Switzerland

Basic data

41,286 sq km (26% arable, 14% pastureland, 30% forest)

7.1m (January 1st 1999; official estimate)

Population (average 1997)

Zurich 353,215Basle 175,154Geneva 174,605Berne (capital) 130,304Lausanne 120,253

Temperate

Hottest month, July, 13-24°C (average daily minimum and maximum); coldestmonth, January, –3-2°C; driest month, December, 64 mm average rainfall;wettest month, July, 136 mm average rainfall

German (64%), French (19%), Italian (8%), Romansch (1%), others (8%)

Metric system

Swiss franc (Swfr)=100 centimes or rappen. Average exchange rates in 1998:Swfr1.45:$1; Swfr82.4:DM100; Swfr1.62:Ecu1. Exchange rate on August 9th1999: Swfr1.497:$1; Swfr81.9:DM100; Swfr1.601:€1

1 hour ahead of GMT (2 hours ahead in summer, late-March to late-October)

January 1st, 2nd (partial in both Geneva and Zurich), April 2nd, 5th, 19th(Zurich only), May 1st (partial in both Geneva and Zurich), 13th, 24th, August1st, September 9th (Geneva only), 13th (Zurich only, partial), December 24th(partial in both Geneva and Zurich), 25th, 26th, 31st (partial in Zurich)

Land area

Population

Main cities

Climate

Languages

Currency

Time

Public holidays in 1999

Weather in Zurich (altitude493 metres)

Measures

4 Switzerland


Political background

Switzerland is a federal state with a parliamentary democracy. The federalgovernment has been run since 1959 by a four-party coalition comprising theRadical Democratic Party (RDP), the Christian Democratic Party (CDP), theSwiss People’s Party (PP) and the Social Democratic Party (SDP). In the 1995parliamentary election the coalition partners won three-quarters of the seats inthe lower house, roughly one-third of these being held by the SDP.

Historical background

The present Swiss Confederation (Confederatio Helvetica, CH) evolved from apact between the people of three valley communities in 1291. The modernfederal state was created in 1848, formed by 15 independent cantons and onehalf-canton. There are now 26 semi-autonomous cantons and half-cantons.Legend has it that the confederation was founded in 1291 when the freepeasants of Uri, Schwyz and Unterwalden pledged to aid each other in endingHabsburg dominion. By shooting at the emperor’s bailiff, William Tell gave thesignal for the expulsion of the oppressors. In reality the so-called Rütli Oath,named after the meadow beside Lake Lucerne where it was sworn, was analliance to preserve the peasants’ traditional autonomy under Habsburg rule.

As time went by, more valleys and towns joined the alliance, which was basedon mutual assistance, peaceful settlement of disputes and a rejection of foreignjudges. These principles of local autonomy and federalism underpin thepresent Swiss constitution. By the end of the 14th century the confederationwas on the way to being an independent state, based on equality betweenpolitical entities, whatever their size and economic strength. This is reflectedtoday in the composition of the upper parliamentary chamber.

The Rütli Oath followed the opening of the Gotthard Pass across the Alps inthe 1230s. The pass rapidly became an important north-south link acrossEurope, embroiling the valley communities in European power politics. Warsof conquest by the independent members of the confederation during the 15thcentury were abruptly terminated by a heavy defeat by the French at the battleof Marignano in northern Italy in 1515. Thereafter, a peace treaty with Franceand a pact to supply mercenaries kept the Swiss out of foreign wars. The con-federation made its first formal declaration of armed neutrality in 1647 duringthe 30 years’ war (1618-48). Switzerland’s status of permanent armed neutralitywas later enshrined in international law at the Congress of Vienna in 1815.

The confederation survived two centuries of civil war between Catholics andProtestants that followed the Protestant Reformation in the 16th century, aswell as an invasion by Napoleon Bonaparte in the winter of 1797/98 designedto secure the mountain routes to Italy. In 1848, after a brief civil war in 1847,the Swiss opted for economic unity and a federal political structure. From aconfederation of independent states, Switzerland became a modern federal

The origins of Swissconfederalism—

—show a national effortfor consensus

Geography fostersneutrality—

—but does not spare it fromcivil war and invasion

Switzerland 5


state. Many elements of the 1848 constitution still survive, although theformalised system of direct democracy (see box) first appeared in a revisedconstitution of 1874.

Switzerland industrialised rapidly in the 19th century and by 1850 was consid-ered the second most industrialised country in Europe after Great Britain. Theperiod between the first world war (1914-18) and the second world war (1939-45) was marked by labour unrest, including a general strike in 1918. In 1937employers and trade unions made a pact of industrial peace, which continuesto govern workplace relations. Switzerland derived important economic bene-fits from remaining outside the two world wars, an experience that strength-ened the country’s isolationist political tendencies.

Important recent events

December 1992: 50.3% of Swiss voters reject membership of the European EconomicArea, an 18-member free-trade zone with the EU.February 1994: Voters decide to ban freight traffic going through the Alps, from 2004.June 1994: Voters refuse to provide Swiss troops for UN peacekeeping operations.December 1994: Switzerland and the EU open talks on a package of bilateral accords.June 1995: Voters reject a plan to make it easier for foreigners to buy property inSwitzerland.December 1996: Switzerland joins NATO’s Partnership for Peace.August 1998: Swiss banks reach a $1.25bn settlement with Jewish organisations tohead off lawsuits over wartime claims.April 1999: Voters approve a revised constitution including abandoning gold backingfor the currency.June 1999: Switzerland and the EU sign bilateral accords. Voters reject the introductionof maternity benefit and approve tough asylum laws.

Constitution and institutions

The federal constitution defines the relationship between the federal govern-ment and the cantons. The federation guarantees Switzerland’s independence,maintains peace and order at home, protects the freedom and rights of theindividual, and promotes the common welfare. The federal government isresponsible for foreign policy, defence, pensions, post, telecommunications,railways and currency. In principle, everything that is not specifically in thehands of the federal government is the responsibility of the cantons, includingeducation, utilities, roads (except national highways), hospitals and judicialand taxation systems. Each canton comprises numerous communes, totallingmore than 3,000 in all, with varying degrees of autonomy. Every Swiss inheritsby law the citizenship of a commune from his or her ancestors.

Government at both federal and cantonal level is divided into independentlegislative, executive and judicial functions. At the federal level, the authoritiesare the Federal Assembly, the Federal Council and the Federal Court. TheCourt. The federal executive and legislature are weak compared with other

Decentralised politicalstructure

Federal institutions

6 Switzerland


European countries because many functions rest with the cantons and, moreimportantly, because all important decisions must be submitted to the people.

The Federal Assembly (parliament) has two chambers, the National Council(lower house) and the Council of States (upper house), elected every four years.The National Council, with 200 members, is elected by proportional represent-ation in most cantons. The Council of States comprises two representativesfrom each of the 20 full cantons and one representative from each of the sixhalf-cantons. For a proposal to be passed, a majority in each chamber of parlia-ment has to approve it. Party affiliation is not strictly enforced.

The Federal Council is the executive authority. Each of its seven members isthe head of a department or ministry. One member of the Federal Council iselected in rotation as president for one year, mainly for representative pur-poses. The federal councillors are elected by, but not necessarily from, parlia-ment for a renewable term of four years.

Since 1959 the Federal Council has been made up of two representatives eachfrom the RDP, the CDP and the SDP, and one representative from the PP. It issupposed to maintain a geographic and linguistic balance between theGerman, French and Italian-speaking regions. The federal councillors makeimportant decisions jointly and must accept collective responsibility for thesedecisions, notwithstanding individual party policy.

Forms of democracy in Switzerland

• An initiative enables the people to propose changes to the federal or cantonalconstitutions. If signed by 100,000 voters at the federal level, the proposal must be putto the whole electorate and is accepted if approved by a majority of those voting and, infederal matters, by a majority of cantons.

• A referendum allows the Swiss people to express their opinion on legislative andconstitutional changes. Any law passed by both houses may be submitted to areferendum if required by eight cantons or 50,000 registered voters.

The number of initiatives and referendums has increased greatly in recent years, with anaverage of ten votes annually. But voter tunout has declined and rarely exceeds one-third to one-half of those eligible. In early 1999 parliament postponed discussion ofgovernment proposals to increase, by 50,000, the number of signatures required forreferendums and initiatives, to make them more difficult to call. Even if approvedeventually, the plan would not significantly reduce the inhibiting effect of referendumson Swiss foreign policy and domestic politics. More fundamental would be the restraintsimposed on direct democracy if Switzerland were to join the European Union, as voterswould not have the right to overturn European law or policy.

The Federal Court in Lausanne is the final court of appeal in all mattersconcerning constitutional, civil or criminal law. Its 30 judges and 30 substitutejudges elected by parliament represent the three main language regions. Itsdecisions are particularly important in ensuring that the independent cantonalcourts do not generate different interpretations of the same laws.

The judicial system

Switzerland 7


The federal ministries

Ministry Minister

Defence & sport Adolf Ogi (PP)

Economic affairs (incl agriculture, employment & industry) Pascal Couchepin (RDP)

Finance Kaspar Villiger (RDP)

Foreign affairs Joseph Deiss (CDP)

Home affairs (incl social security, science & culture) Ruth Dreifussa (SDP)

Justice & police (incl refugees) Ruth Metzler (CDP)

Environment, transport, energy & communications Moritz Leuenberger (SDP)

a Current holder of the one-year rotating federal presidency.

Political forces

A two-party system existed at the beginning of the federation, but in 1891 theConservatives joined the Liberals in government. From then until the entry ofthe Social Democrats into government in 1943, Switzerland was ruled by a“bourgeois” coalition of Conservatives and Liberals. Permanent coalition hasproduced remarkable political stability, with a bias towards conservatism. Mostof the political parties are organised on a cantonal basis, with a fairly weaknational structure. Aside from their parliamentary representation, the partiesare consulted, along with other interest groups, on all proposed federal legis-lation. However, their role in policymaking is limited.

The Radical Democratic Party (RDP) inherited the mantle of the LiberalParty, the leading political party from 1848 to 1900. It is in the centre of thepolitical spectrum, coupling a generally liberal stance on economic policy withsupport for a generous social welfare system. The Radicals back EU membership.

The Christian Democratic Party (CDP) developed from the originalConservative opposition and remains strong in the traditionally Catholiccantons. The Christian Democrats’ political platform tends to be conservativeand paternalistic, and favours a more active foreign policy, including partici-pation in a collective European security structure and EU membership.

The Swiss People’s Party (PP) also derives from the old Liberal Party, buthas become a populist, nationalistic, right-wing party with a strong baseamong farmers and small businesses in German-speaking areas. Its anti-welfare,anti-EU platform has enabled the PP to draw voters away from the more mode-rate CDP and RDP.

The coalition partners

8 Switzerland


The Social Democratic Party (SDP), another offshoot of the Liberal Party,is a socialist party embracing a fairly wide spectrum of left-leaning views.Policies include a reduction in military spending, EU membership and supportfor the welfare state.

Eight other political parties are represented in parliament, but none has morethan eight seats. They include the Ecology Party (the “Greens”), the SwissDemocrats (a right-wing, anti-immigration party), the Liberal Party (favouringfree markets) and the Ticino League (a right-wing nationalist party fromItalian-speaking Switzerland).

Main political figures

Christoph Blocher (PP): Switzerland’s most prominent Eurosceptic. A charismaticpolitician and successful industrialist (chairman of Ems-Chimie), he has turned the PP froma centrist party into a nationalist, populist party appealing mainly to German speakers.

Christiane Brunner (SDP): Unconventional trade union leader and women’s rightsactivist, rejected by Parliament as SDP candidate for the Federal Council in 1993 after astrong personal campaign against her. Now one of Geneva’s representatives in theCouncil of States.

Pascal Couchepin (RDP): Elected in March 1998, succeeding Jean-Pascal Delamurazas economics minister. Pro-European francophone and former mayor of Martigny in thecanton of Valais.

Joseph Deiss (CDP): Elected in March 1999 and succeeded Flavio Cotti as foreignminister. Bilingual (French/German) economics professor from Fribourg University.

Ruth Dreifuss (SDP): Interior minister since 1993 and, in 1999, the first woman tohold the rotating Swiss presidency. A former trade unionist, she was only the secondwoman and the first person from Switzerland’s tiny Jewish community to be elected tothe Federal Council. Ostensibly from Geneva (to qualify as a francophone) but actuallyborn in German-speaking Aargau.

Moritz Leuenberger (SDP): Head of environment, transport, communications andenergy ministry, elected in 1995. A German speaker who came to prominence in 1989when he chaired a parliamentary commission investigating secret files held by the policeon over 900,000 Swiss and foreign residents.

Ruth Metzler (CDP): Elected in March 1999, taking over the justice and policeministry from Arnold Koller. A lawyer from German-speaking Appenzell-Innerrhoden,Switzerland’s smallest (half-) canton.

Adolf Ogi (PP): Former director of the Swiss Skiing Association, transport minister in1988-95 and now defence minister. Popular German-speaking pro-European with verydifferent views from fellow PP member Mr Blocher.

Kaspar Villiger (RDP): German speaker from Lucerne, defence minister in 1989-95and now finance minister with the task of balancing the budget by early next century.

Other political groupings

Switzerland 9


International relations and defence

Situated in the heart of Europe, Switzerland inevitably has close economic tieswith the EU, by far its largest trading partner. Switzerland has had a free-tradeagreement with the EU since 1972 and there are over 100 other bilateral agree-ments with Brussels on practical issues such as rules of origin and tacklingcustoms fraud. However, in December 1992 Swiss voters narrowly rejectedSwitzerland’s proposed membership of the European Economic Area (EEA),which extends the European single market to the countries of the EuropeanFree-Trade Association (EFTA). From its inception in 1960, EFTA has beenSwitzerland’s main tool for economic integration within Europe, and exclusionfrom the EEA, which came into force on January 1st 1994, has left the Swisseconomically and politically isolated. EU enlargement on January 1st 1995limited EFTA membership to Switzerland, Norway, Iceland and Liechtenstein,reducing from 7% to 0.7% EFTA’s share in Swiss foreign trade.

The 1992 referendum result also forced the government to freeze its appli-cation to join the EU. Switzerland has since adopted a unilateral policy ofaligning its legislation with EU laws wherever possible to facilitate trade. TheSwiss government has also tried to alleviate the commercial impact of EEAexclusion by negotiating new bilateral agreements with Brussels. These talks,which began in December 1994, were completed in December 1998, althoughthe seven-part package has still to be ratified by national parliaments and theEuropean parliament before entering into force in 2001. The transport deal inparticular (see box) has aroused opposition from environmentalists and nation-alists, making a referendum challenge likely in 2000. However, the accordsappear to have the broad support of a majority of Swiss people. The govern-ment claims they could add Swfr8bn ($5.2bn), or 2%, to Swiss GDP in thelonger term. Although Switzerland is host to, and participates in, a number ofUN organisations, it has only observer status in the UN General Assembly. In1992 it became a member of the IMF and the World Bank, after approval byvoters in a referendum, and it is a full member of the OECD, the Council ofEurope, the Organisation for Security and Co-operation in Europe (OSCE), theWorld Trade Organisation (WTO) and EFTA.

In August 1998 the two big Swiss banks—Union Bank of Switzerland (UBS) andCredit Suisse—agreed to pay $1.25bn to settle the dispute with Jewishorganisations over Switzerland’s treatment of gold looted by the Nazis duringthe second world war and the assets of Jewish victims of the Holocaust. Thedeal removes all claims against other Swiss banks, industry, the Swissgovernment and the Swiss National Bank, as well as financial sanctionsimposed or threatened by US state and local financial officials. By mid-1999 (asthis report goes to print) Swiss and other European insurance companiesappeared to be on the way to a settlement of outstanding claims from thewartime era. Other initiatives undertaken by the Swiss government aimed atuncovering the truth and returning assets to their rightful owners are stillbeing pursued (see box overleaf).

Relations with the EU

Other international bodies

Nazi gold and Jewish assets

10 Switzerland


The size of the settlement by the two big banks compares with about Swfr100m($64m), which bankers expect to be the sum total of unclaimed Holocaust-related accounts uncovered by the Volcker commission’s forensic audit (anaudit that the banks claim will have cost them up to Swfr1bn).

Bilateral talks with Brussels

Bilateral talks with Brussels, which began in December 1994, were concluded inDecember 1998 and an agreement was signed in June 1999. The seven agreementscover the following areas.

Air transport: Improved access for Swiss carriers in Europe and reciprocal rights for EUcarriers in Switzerland.

Road transport: In return for better access to the EU’s road haulage market andconcessions in aviation, relaxation of Switzerland’s 28-tonne lorry weight limit in stagesfrom 2001, with full access for the EU’s 40-tonne trucks by 2004. Under new system oftaxing heavy lorries by weight, distance travelled and pollution caused, trucks will haveto pay an average of Swfr 325-330 (about $220) to transit Switzerland.

Free movement of people: Mutual recognition of diplomas and social securityentitlements. The scrapping, over a six-year period, of the Swiss quota system for workpermits as applied to EU and EFTA citizens—although quotas may be reintroduced ifinflows of immigrants are strong. After seven years Switzerland can opt out of the pactor continue it for another seven years. At this point freedom of movement for EU andEFTA citizens will become permanent.

Access to agricultural markets: Lowering of tariff and other barriers to trade inagricultural goods, which will boost exports of Swiss cheese and imports of a range ofEU-produced vegetables and fruit into Switzerland.

Elimination of technical obstacles to trade: Mutual recognition of trademarks,technical regulations and other rules and procedures for testing and certification ofindustrial goods.

Public procurement: Access for EU companies to procurement by local communes,and by the water, energy and railway sectors in Switzerland, with reciprocal rights forSwiss companies in the EU. Federal and cantonal contracts are already open to foreigncompetition under the public procurement agreement of the World Trade Organisation(WTO). The Swiss telecommunications sector was fully opened to competition inJanuary 1998, at the same time as the EU market.

Research and development: Observer status for Switzerland on the variouscommittees managing EU research programmes (and awarding contracts), in return fora contribution to the EU’s research budget.

Support for Swiss membership of the EU has been gradually increasing during the 1990sbut opposition remains entrenched in the country’s German-speaking rural heartland.The government, for which EU entry is a “strategic objective”, is expected to revive its1992 application in the next parliament, provided the bilateral accords are approvedand the introduction of the EU’s single currency goes smoothly.

Switzerland 11


In addition, Swiss commercial banks are known to have handled about $60m(at 1945 prices) of gold from Germany during the war. After the warSwitzerland made a voluntary contribution of Swfr200m for reconstruction inEurope, as well as handing over gold and other Nazi assets to the Allies underthe 1946 Washington agreement and a subsequent deal. Switzerland arguesthat no new evidence has emerged to warrant renegotiating these accords,under which it paid the Allies gold worth Swfr250m ($58m at that time) forhandling looted Nazi gold and a further Swfr121m in 1952 for other Nazi assetsdeposited in Swiss banks.

Since 1945 Switzerland has stayed politically aloof within western Europedespite stronger economic ties—but the end of the cold war in 1989 hasprompted a heated debate on the role of Swiss neutrality. The governmentfavours a relaxed interpretation of neutrality, giving it a freer hand in inter-national dealings, constrained only by non-involvement in foreign wars.However, the Swiss people have been wary of abandoning traditional notionsof neutrality, and many still believe that Switzerland should minimise its in-volvement in foreign affairs.

Having decisively rejected Swiss membership of the UN in 1986, in June 1994voters refused a proposal to provide troops for UN peacekeeping operations.Although Switzerland joined NATO’s Partnership for Peace in December 1996,this decision was not subject to a referendum. The partnership aims to pro-mote closer military ties among non-NATO countries. Switzerland also pro-vides unarmed military observers for some UN operations (including Bosnia,Korea and the Middle East). Government proposals to use troops for non-combat NATO missions—and to arm soldiers serving abroad for their owndefence—remain highly controversial. However, in the last couple of yearsopinion polls suggest a shift in voters’ opinions towards greater involvement ininternational organisations, including UN membership and the provision ofUN peacekeeping troops.

In a report on Switzerland’s future defence needs in February 1998 agovernment-sponsored commission (the Brunner commission) argued thatneutrality was never intended as an end in itself, but was seen as the means bywhich Switzerland could best protect itself from attack. The report said that themost important external threats now facing Switzerland—notably organisedcrime, terrorism and arms proliferation—could only be tackled on an inter-national level, including joining the EU and strengthening co-operation withNATO. The report also recommended a reorganisation of the Swiss armyaround three professional groupings: a solidarity corps for rescue and peacemissions abroad, including mine clearance; specialists with expertise in soph-isticated arms technologies, such as biological weapons, electronic warfare etc;and a rapid intervention force for high-risk missions to combat terrorism.Reforms of the Swiss army are proceeding in this direction, although for theforeseeable future it will remain essentially a citizens’ militia with purely defen-sive functions.

Neutrality and defence

12 Switzerland


Nazi gold and Jewish assets: inquiries andfundsIn response to accusations that Switzerland aided the Naziwareffort and hoarded assets deposited in banks by JewishHolocaust victims, various inquiries and funds have been setin motion.

The Volcker commission, set up jointly in 1996 by Jewishgroups and the Swiss Bankers’ Association, has combed bankrecords for unclaimed assets that may have escaped previoussweeps in 1962 and 1995-96. Headed by the former USFederal Reserve chairman, Paul Volcker, the commission is dueto give its final report covering all Swiss banks in September1999.

The Swiss Bankers’ Association published two lists ofdormant accounts in July and October 1997, covering aboutSwfr80m; claims are being handled by an independentpanel. Accounts worth Swfr5.5m were restored in 1998, andthe remaining claims should be settled by the end of 1999.Agovernment-backed independent commission of experts(the Bergier commission), comprising nine Swiss and foreignhistorians, is reviewing Switzerland’s actions during and after thewar in relation to Nazi assets, its treatment of Jewish refugees and

unclaimed accounts. The commission has until 2002 to completeits work, but has already published interim reports on Switzerland’sgold transactions during the second world war, dealings in stolenartworks, the wartime activities of Swiss insurance companies andthe infamous “J” passport stamp used to identify (and return)Jewish refugees from Nazi-occupied Europe.

The Special Fund for Holocaust Victims, created by the bankswith the support of industry and the Swiss National Bank (thecentral bank), is disbursing Swfr280m to needy Holocaust survivors.About Swfr85m was paid out to such survivors in eastern Europeand the US in 1997-98.

The Swiss Solidarity Foundation, proposed by the Swissgovernment, would disburse the interest on investment fundsderived from the sale of Swfr7bn of revalued gold from the centralbank for young victims of violence, disasters and poverty, abroadand in Switzerland. The project suffered a setback in June 1999when the lower house of parliament rejected a constitutionalamendment enabling the proceeds of central bank gold sales to betransferred to third parties. The government is in the process ofreviewing other options.

Plans for 2003 envisage recruiting 1,000 soldiers on full-time contracts, addingto the professional core of 3,300 instructors and officers of brigade commanderrank and above. The reserve will be cut by more than half to 110,000-150,000,from 390,000 in 1998. Military service will remain compulsory for all Swiss menin good health, but the age at which service ends, now 42, will be lowered.

Defence expenditure has been steadily falling over the 1990s. The 1999 budgetallocates Swfr5.2bn ($3.4bn) to defence, compared with over Swfr6bn in 1990.In 1998 defence spending amounted to Swfr5.4bn, equivalent to 11.5% ofcentral government (confederation) spending and about 1.4% of GDP.However, the true figure, which includes the cost to firms of employees awayon compulsory army training, is probably twice that. Even on official figures,Switzerland spends more per head on defence than any other non-nuclearEuropean country except Norway. Switzerland also has a comprehensive civildefence system. Each commune is required by law to establish a local civildefence organisation, including the provision of sufficient nuclear shelters forthe entire population, and all new houses are required to have a bomb shelter.

Military forces, 1998

Army/air forceActive 3,300Reserves 390,000Total 393,300

Source: International Institute for Strategic Studies, The Military Balance 1998/99.

Switzerland 13


Resources

Population

Foreign workers make up around one-quarter of the total labour force—thesecond highest proportion in western Europe after Luxembourg. However, im-migration, the main factor behind steady population growth for many years,has fallen from a net inflow of 56,600 in 1990 at the height of the last econ-omic boom to a net outflow of 6,000-7,000 in 1996 and 1997, and a net inflowof just 700 in 1998. The decline primarily reflects a reduction in the number ofwould-be immigrants rather than a rise in emigration. Even so, the foreignpopulation increased by 219,900 between 1990 and 1998, while the Swisspopulation grew by only 111,200. (Historical data on population are given inReference table 1.)

One reason for the large number of foreigners in Switzerland is the country’sstrict naturalisation rules. Half of those categorised as foreigners have lived inSwitzerland for more than 15 years or were born in the country. More than70% of the foreign population has permanent resident status, which givesentitlement to virtually all the benefits of living in Switzerland except the rightto vote. For young men, Swiss nationality can be a hardship because it bringswith it the requirement of compulsory army service.

Italians are the largest single group of foreign nationals, although their share inthe foreign population has halved from over 50% in 1975 to 25% in 1998.Citizens of former Yugoslavia, whose numbers increased sharply during the1990s, are now the second largest group with a 24% share.

Citizens of countries that are members of the EU or EFTA, who make up 60% offoreigners in Switzerland, can earn permanent resident status after five years ofwork with an annual permit. The federal government imposes quotas on thenumbers of annual and seasonal work permits that can be issued by thecantons. During the 1990s it operated a “three circles” policy, which gavepreference to EU and EFTA citizens, followed by citizens of countries with atradition of sending workers to Switzerland (such as the former Yugoslavia).Other countries were classified in the third circle. This policy, criticised asracist, has given way to one that gives EU and EFTA citizens priority over allother nationalities, and that policy will obviously be strengthened when thebilateral accord with the EU on the free movement of persons comes into force.

Although Switzerland is generally a tolerant place, every so often right-winggroups launch so-far unsuccessful initiatives to restrict immigration. Thegovernment has nevertheless acted to tighten asylum procedures, mostrecently in 1998. The number of asylum seekers was 41,302 in 1998, close tothe record 41,630 in 1991, and could be as high as 60,000 in 1999 in the wakeof the Kosovo crisis. In 1998 there were 583 asylum seekers per 100,000residents, a far higher proportion than in any EU country. In Germany, which

Immigration has drivenpopulation growth—

—but the naturalisationrate is low

Immigration policy favoursEU and EFTA citizens

Asylum procedures havebeen tightened

14 Switzerland


has the largest number of asylum-seekers in the EU, the ratio is 120 to 100,000residents.

Resident population by age and nationality, 1998(‘000)

Age group 0-19 1,65620-39 2,13340-64 2,26565+ 1,073Total 7,127 Swiss 5,727 Foreign 1,400Source: Federal Department of Economic Affairs, La Vie économique.

Like other European countries, Switzerland has an ageing population, with adeclining birth rate and rising life expectancy (which, at 82 years for womenand 76 years for men, is among the highest in Europe for both sexes).

Education

The cantons are responsible for primary and secondary schooling, which iscompulsory between the ages of seven and 16. There are two federal poly-technics in addition to eight cantonal universities and seven regional collegesof higher education offering tertiary degree-level vocational training.

Over 80% of the working-age population has completed upper secondary edu-cation, the third highest proportion in the OECD. It attests to the highlyskilled workforce despite one of the lowest proportions of university graduatesof any OECD country, at 8%. In Switzerland many young people study for tert-iary professional qualifications that in some countries would count as univer-sity degrees. Taking into account all tertiary qualifications, Swiss attainment at23% of the working-age population is around the OECD average, althoughthere continues to be an imbalance between qualifications gained by men andby women. In 1997 a third of men aged 25-34 had tertiary qualifications com-pared with 16% of women, and the disparities increase with age.

Switzerland gives its children a solid basic education, with a strong emphasison vocational training in schools, colleges and traditional apprenticeships. Inaddition, at any time about a third of the workforce is following some kind ofcontinuing education or training. Schools are generally well-funded, whileSwiss teachers’ salaries are among the highest in the industrialised world. Notsurprisingly, the quality of education is high, as international comparisons ofattainment confirm. In the tertiary sector, Switzerland can boast some world-class faculties but there continues to be wasteful duplication between cantons.Moreover, while the universities themselves are publicly funded, studentsreceive little help with subsistence costs. As in many other European countries,there is a high drop-out rate from tertiary education, with about a quarter ofstudents failing to complete their studies.

Switzerland 15


Health

The healthcare system in Switzerland is based on private provision, which sup-plies high-quality but expensive services. In 1996 private medical insurancewas made compulsory for all Swiss residents; new rules required insurancecompanies to charge the same adult premium for basic treatment, regardless ofsex, age or state of health. Premiums, which vary by canton and company,have since risen sharply (by 20-25% in 1996, 12% in 1997 and 5% in 1998)and their cost has become an important political issue, despite subsidies for theless well-off. The new insurance rules were accompanied by measures to cut theescalating costs of health services, especially hospital charges and prices formedicines. However, these are only just beginning to have an impact onpremiums, which are predicted to rise by about 3% in 1999.

Health spending of Swfr37bn ($29.8bn) in 1996, at 10.1% of GDP, is high byOECD and European standards, surpassed only by Germany (10.4%) and theUS (13.6%). In terms of spending per head, Switzerland comes top of theEuropean league, at $2,574 per person in 1997 (measured in dollars atpurchasing power parity). Spending per person has nearly doubled since 1985,reflecting a rapid rise in costs. For basic health insurance, premiums cover 71%of pay-outs, contributions from public authorities about 14% and directpayments by patients about 13%. However, including the payment ofinsurance premiums, households funded two-thirds of their own healthtreatment in 1996.

Natural resources and the environment

More than half of Switzerland is covered by the alpine massif, while the JuraMountains form a spine along its northern flank (see map). The mainindustrial centres and the most productive farms are concentrated in the longstrip of relatively low-lying land that runs from Geneva in the west throughZurich to St Gallen in the east. The Rhone and Rhine rivers rise in the SwissAlps, and Basle on the Rhine is an important river port. Otherwise, waterwaysare not used for commercial traffic. Switzerland’s many lakes, of which LakeGeneva is the biggest, support small-scale fishing and a wide variety of leisureactivities.

Switzerland’s highest peak is Monte Rosa (4,634 metres) while its best-knownalpine landmark, the Matterhorn, near Zermatt, is 4,478 metres high. The Alpsprovide hydroelectricity, Switzerland’s only energy resource. The country hasno minerals or other deposits to speak of, and much of its farmland is on fairlybarren uplands. Of Switzerland’s total land area of 41,286 sq km, 30% iscovered by forest and woods, 40% is farmed, 6% is built upon and 26% is un-productive. In practice, this means that much of Switzerland remains unspoiltby development and retains its picture-postcard prettiness.

16 Switzerland


Transport and communications

Switzerland has excellent domestic and international communications and a1,500-km well-developed motorway and trunk road network links the majorcities. In the wake of the 1994 referendum to ban all transit freight traffic goingthrough the Alps by road by 2004 (which was a major sticking point duringnegotiations surrounding the road transport agreement with the EU), thefederal government decided not to expand the road capacity of the fourprincipal transalpine crossings: the Gotthard, Saint-Bernard, Simplon andGreat-Saint-Bernard routes.

Although the rate of car ownership is one of the highest in the world, with onecar for every two people, the Swiss make extensive use of the 5,000-km railwaynetwork, which runs with legendary precision. In 1995, 13% of person-kmtravelled were by rail, double the proportion in France or Germany. For goods,despite a downward trend in market share, the differences are even moremarked, with 39% of tonne-km carried by rail in Switzerland in 1995, comp-ared with 23% in France and 20% in Germany. (For transport data seeReference table 4)

The Swiss Federal Railways, which are heavily subsidised by the federal govern-ment and the cantons to the tune of over Swfr2bn a year, are in the process ofrestructuring, but privatisation is not as yet on the horizon. Since the start ofthe decade the workforce has shrunk by 7,500 to 31,500 currently, and morejobs are scheduled to go in the next few years. In 1997 the federal railways splittheir operations into two divisions, infrastructure and transport, paving theway for a more market-oriented approach. In 1999, after a Swfr12bn debt write-off by the federal government, the railways ceased to be part of the federaladministration. They are now a state-owned limited company with much morefreedom to act as a commercial business in the newly liberalised Europeanmarket, including the leasing of railway lines to private or overseas operators.

Switzerland has a long-term policy of discouraging road freight traffic throughthe Alps. Under its 1992 bilateral transport accord with the EU (seeInternational relations and defence), Switzerland pledged to undertake a mas-sive transalpine rail tunnel project (known by its German acronym as NEAT) toaccommodate rising north-south transit freight traffic. The two new tunnels tobe constructed under the Gotthard massif and the Lötschberg represent aSwfr30bn investment for Switzerland over 20 years, to be financed mostly byhigher taxes and charges. The Lötschberg tunnel in western Switzerland isexpected to open in 2006 and the Gotthard about six years later.

Switzerland is implementing the 1994 referendum decision on Alpine transittraffic mainly through a non-discriminatory system of charging heavy lorries.This was an important element in its bilateral negotiations with the EuropeanUnion. The new charging system, which will come into force from 2001following approval in a September 1998 referendum, is designed to reflect theenvironmental costs of heavy goods traffic and is related to weight, distancetravelled and pollution emissions. The tax will raise eight times as much as

Environmentalconsiderations affect

transport

The rail system is highlydeveloped

The federal railways arereorganised

A long-term policy ofshifting freight transit

from road to rail

Switzerland 17


current lorry taxes, and a high proportion of the Swfr1.5bn annual revenuewill go to finance NEAT. The government is also considering extra subsidies tothe railways of Swfr100m-200m a year to make rail freight costs more attractivein relation to road transport.

Switzerland has two main civil airports, at Zurich and Geneva, with smaller air-ports at Basle, Lugano and Berne, the capital. Zurich, which the nationalairline, Swissair, has made its hub for intercontinental flights, is suffering fromsevere capacity constraints because of the refusal of local people to approveexpansion plans. Swissair, which is 20% publicly owned, receives no statesubsidies but has been granted a monopoly until 2008 on routes it exploited asof July 1998. Other Swiss companies may operate routes Swissair does notserve, and will be able to compete with Swissair on all routes as from 2008.Switzerland already has an “open skies” agreement with the US and Swissairwill face more competition from EU airlines once the recently-signed bilateralaccords come into effect (see International relations and defence).

Although Switzerland is a small country, it has the densest telephone networkper head in the world and is ranked in the world’s top ten for revenue frominternational calls. By mid-1999 there were over 1m Internet users inSwitzerland and about 12% of Swiss households had Internet connections, ona par with Britain and Germany although well below the Nordic countries andthe US.

The Swiss post, telegraph and telecommunications monopoly, PTT, was splitinto two separate public corporations for post and telecoms in 1997 ahead offull telecoms liberalisation on January 1st 1998. Market liberalisation, timed tokeep Switzerland in line with its EU neighbours, is bringing down the price ofhigh-quality but expensive Swiss telecoms services. The state telecoms operator,Swisscom, was partly privatised in late 1998 and freed from government cont-rol to operate as a commercial business.

Swisscom is obliged to give competitors access to its fixed-line network on“fair” interconnection terms and the Swiss telecoms regulatory authority isconsidering plans to allow private operators direct access to homes and busi-nesses using advanced radio technology. By 1999 Switzerland had over 100 pri-vate operators, most offering specialist services to businesses. However, two pri-vate consortia are competing with Swisscom on a full range of services, usingtheir own fixed-line telecoms networks, as well as line rental. Swisscom hasalso lost its former monopoly on mobile telephone services and now facescompetition from two licensed private operators.

Swisscom, nevertheless, remains the dominant operator, especially in theprovision of mobile telephony services with 2m subscribers as of June 1999. Italso holds a five-year contract to ensure a “universal service” to the Swisspublic. After jettisoning some ill-judged foreign investments in India andMalaysia, it is now seeking to strengthen its position in neighbouringcountries. (See Reference table 5 for historical data.)

Civil aviation

Telecommunications

18 Switzerland


Energy provision

Switzerland has large resources of hydroelectric power, but they are almost fullyexploited. In 1998 hydroelectric power supplied 56.3% of Swiss electricityproduction of 60.9bn kwh, while the country’s five nuclear power stationsprovided 40%. Conventional thermal stations made up the balance of 3.7%.Switzerland also imports electricity, mostly from French nuclear power plantsjust across the border.

Between 1990 and 1998 energy consumption rose by 7.8%, twice as fast asGDP, although this was partly as a result of a jump in energy use in the winterof 1998, which was exceptionally cold. The government’s 1991 “Energy 2000”programme aims to stabilise overall energy consumption by 2000. It followed areferendum in 1990 in which the Swiss voted for a ten-year moratorium on theconstruction of nuclear power plants, but against a proposal to abandonnuclear power altogether. The government is negotiating closure dates for theexisting stations, which came on-stream between 1969 and 1984, and has noplans to build new ones. (For national energy data, see Reference table 6.)

Energy balance, 1998(m tonnes oil equivalent)

Elec-Oil Gas Coal tricity Other Total

Primary supplyProduction 0.0 0.0 0.0 13.5 1.5 15.0Imports 14.1 2.3 0.1 5.3 0.0 21.8Exports –0.5 0.0 0.0 –6.6 0.0 –7.1Stock change 0.0 0.0 0.0 0.0 0.0 0.0Total 13.6 2.3 0.1 12.2 1.5 29.7

Processing & transformationLosses & transfers –5.6 –0.1 0.0 –12.7 –0.5 –18.9Transformation output 5.2 0.0 0.0 4.8 0.0 10.0

Final consumptionTransport fuels 6.4 0.0 0.0 0.2 0.0 6.6Industrial fuels 0.8 0.9 0.1 1.4 0.4 3.6Residential etc 5.5 1.3 0.0 2.7 0.6 10.1Non-energy uses 0.5 0.0 0.0 0.0 0.0 0.5Total 13.2 2.2 0.1 4.3 1.0 20.8

Source: Energy Data Associates.

Switzerland’s electricity sector is highly fragmented, with more than 1,000small producers and distributors of hydroelectricity in the mountain cantons.However, 60% of the market is controlled by two main groupings. An allianceof three Swiss energy companies, known as West, in which Electricité deFrance has an interest, supplies the western half of Switzerland whileElectrowatt, in which two German electricity companies have a stake, coversthe eastern half. The government plans to liberalise Switzerland’s electricitysector in stages over six years from 2001—catching up with and thenovertaking the EU’s liberalisation plans. As a consequence, prices to industrialcustomers, now the most expensive in Europe, will be cut, but many of thesmall high-cost electricity companies are expected to merge or disappear.

Reliance on hydroelectricand nuclear power

Electricity generation anddistribution will be

liberalised from 2001

Switzerland 19


Some will, however, be helped to amortise loss-making investments with theproceeds of an energy tax also due to be introduced in 2001.

The economy

Economic structure

Main economic indicators, 1998

Real GDP growth (%) 2.1

Consumer price inflation (%) 0.1

Current-account balance (Swfr bn) 31.2

Exchange rate (Swfr:$; av.) 1.45

Population (m) 7.1

Source: Swiss Federal Statistics Office.

Switzerland is a small open economy with one of the highest living standardsin the world. Lacking raw materials, the country has based its prosperity onlabour skills and technological expertise in manufacturing as well as earningsfrom services such as tourism and banking (exports of goods and servicesamounted to around 43% of GDP in 1998). The diversified economy has not-able strengths in chemicals and pharmaceuticals, machinery, watches and pre-cision instruments, and financial services, and Swiss firms have been able toexploit niche markets across a wide range of sectors.

Problems of competitiveness posed by high labour and other costs havetraditionally been met by a shift to higher value added products and services,and the strength of the Swiss franc between 1994 and 1996 accelerated enter-prise restructuring. A competitive and export-oriented manufacturing sectorco-exists with a small and heavily protected agricultural sector and a carteliseddomestic market for construction and some services, which is gradually beingopened to competition.

Despite a prolonged depression during the 1990s, construction remains a relat-ively important sector in Switzerland. Gross fixed investment in constructionamounts to a high proportion of GDP (12.9% at constant prices in 1998)compared with most west European countries. In common with other indust-rialised countries, Switzerland has a large services sector—accounting for abouttwo-thirds of GDP and employment. Agriculture represents only some 2% ofGDP but, as elsewhere in Europe, farmers remain a potent political force andthe linked issues of farming and the environment are the subject of livelypublic debate.

Swiss industry is highly decentralised. Nevertheless, it is possible to identifywhat has been called the “golden triangle” connecting Zurich, Basle and Olten,where many of Switzerland’s biggest companies and banks have their head-quarters. The “azure triangle”, with Geneva, Lausanne and Yverdon at itspoints, has a strong services and high-tech base.

Switzerland is a smallwealthy economy—

—with varying degrees ofopenness

Swiss industry is highlydecentralised

20 Switzerland


Comparative economic indicators, 1998

Switzerland Germany France Italy US

GDP ($ bn) 264.4 2,159.2 1,454.9 1,185.2 8,511.0

GDP per heada ($) 26,816 22,980 22,646 22,036 31,488

Consumer price inflation (%) 0.1 1.0 0.6 1.7 1.6

Current-account balance ($ bn) 22.0b –5.9 39.0 20.0 –233.8

Exports of goods fob ($ bn) 98.3b 538.7 298.7 242.6 673.0

Imports of goods fob ($ bn) –97.6b –455.5 –272.6 –206.9 –919.0

a At purchasing power parity. b EIU estimates.

Source: EIU , CountryData.

Economic policy

Following the rejection of European Economic Area (EEA) membership inDecember 1992, the federal government decided to implement a “revitali-sation” programme for the Swiss economy aimed at increasing competition indomestic markets as well as cutting regulation and bureaucracy. The mainplanks of the ongoing programme include:

• a new law on cartels and other anti-competitive practices, which came intoforce in July 1996;

• removing barriers between cantons (mutual recognition of qualifications,ending preferential treatment for local firms in public contracts);

• making Swiss standards and commercial rules “Euro-compatible”;

• reform of the agricultural sector to make it more market oriented;

• reform of the tertiary education and training system;

• labour-market deregulation including easier procedures for entry of highlyskilled foreign workers and crossborder commuters;

• reduction in red tape; and

• full liberalisation of the telecommunications market in 1998 and theelectricity market from 2001.

Changes can be slow to implement owing to the consensual nature of Swisspolitical decision-making and the right of the people to challenge legislation.Thus a new labour law was rejected in a referendum in December 1996 andhad to be redrafted; as of mid-1999, although approved by voters, the revisedlaw was still not in force. Objections to the government’s proposals for liberal-ising the electricity market during the consultation stage forced a rethink,pushing back the timetable from 1999 to 2001 at the earliest.

The federal government has relatively few macroeconomic policy levers avail-able to it. Responsibility for monetary policy rests with the Swiss National Bank(SNB, the independent central bank), whose prime concern is a low and stablerate of inflation. Responsibility for taxation is shared with the cantons; because

The economicrevitalisation programme

The federal governmenthas few policy levers

Switzerland 21


higher taxes are often challenged by parliament and the people, the federalgovernment is obliged to tread warily and does not generally use fiscal policyfor counter-cyclical purposes. Switzerland is a low-tax country by internationalstandards, raising tax revenues equivalent to about 35% of GDP.

Partly owing to economic stagnation, which dampened tax receipts, and partlybecause of high spending commitments in the late 1980s, public deficits anddebt have rapidly accumulated in the 1990s (see Reference table 7 for historicaldata on government finances). The federal (confederation) budget has been indeficit since 1991, although one-off receipts from the sale of shares inSwisscom, the state-owned telecoms operator, resulted in a surplus for 1998.Total public debt (including local governments) has more than doubled since1990 and is likely to reach Swfr210bn ($135bn) by the end of 1999, on anupward trend towards the Maastricht reference value (no more than 60% ofGDP) for entry into the EU’s economic and monetary union.

Throughout the 1990s the Swiss government has made repeated attempts tocut its own spending and deficits, with limited success. It is now committed tobalancing the budget by 2001 (2003 at the latest), an objective inscribed in theconstitution after approval by voters in June 1998. To fulfil this objective, thegovernment is aiming for further cuts in federal spending of some Swfr2bnannually as well as some increase in taxation and social security contributions.While politicians on the left and right of the political spectrum disagree aboutwhere cuts should fall, and about the balance of spending cuts and taxincreases, the aim of budget balance commands remarkably broad support.

Federal government finances

(Swfr bn)

1998 1999 Budget Outturn Budget

Revenue 40.0 44.1a 42.4

Expenditure –47.6 –46.6 –46.3

Budget balance –7.6 –2.5 –3.9 % of GDP –2.0 –0.7 –1.0b

Federal debt 104.6 109.6 108.7 % of GDP 27.4 28.7 27.9

a Excluding Swfr3bn from sale of Swisscom shares. b Based on EIU forecast of GDP.

Source: Federal Finance Administration.

The funding of the social security system—in particular of the state pensionscheme—is the subject of intensive discussion. Government projections sug-gest that maintaining the existing system of welfare benefits could cost anextra Swfr15.3bn per year by 2010. The Federal Council has warned that furt-her value-added tax (VAT) increases will be necessary over the next decade—ontop of the rise in the standard rate from 6.5% to 7.5% in January 1999 to fin-ance the deficit on the state pension scheme. Some trimming of benefits(including a further increase in the normal pensionable age for women to 65—already raised from 62 to 64 in 1997) is also being considered. Voters have

Public deficits and debthave escalated since 1991—

Pensions and the railprogramme are financed

through higher taxes

22 Switzerland


shown themselves reluctant to cut existing benefits but in June 1999 rejectedthe introduction of maternity benefit, leaving Switzerland virtually isolatedamong European countries in having no statutory provision for maternity pay.

The financing of the Swfr30.5bn alpine rail tunnel project will also requireadditional tax revenue (see Transport and communications). In November1998 voters approved a financing package that provides for over half thefinance to come from higher charges on heavy goods vehicles. The rest of themoney will come from existing petrol taxes, an increase in VAT and borrowing.

In the first half of the 1990s, while the economy was in recession, the SNB waswidely criticised for running an overly restrictive monetary policy designed torestore price stability. By 1995 the central bank had begun to loosen the mone-tary reins, but the fragile economic recovery under way was hit by the Swissfranc’s strength—a consequence of US dollar weakness and concerns about thecredibility of the future euro that prompted large capital inflows from strong-currency countries, notably Germany. Since 1995 the SNB has run a generousmonetary policy intended to underpin recovery and has intervened actively inthe money markets to reduce interest rates and keep the franc’s value down. Ithas been helped by very low inflation in recent years, well under the 2% a yearrate that the SNB defines as price stability. The bank’s primary aim of pricestability has therefore not clashed with its secondary aim of promoting non-inflationary economic growth.

The official target of monetary policy is a narrow measure of the moneysupply—seasonally adjusted central bank money comprising cash in circu-lation and sight deposits held at the SNB by commercial banks (see Referencetable 8). However, the central bank does look at other factors influencingmonetary conditions, most notably the exchange rate.

The persistent strength of the currency reflects Switzerland’s role as a haven foroverseas flight capital rather than the country’s economic performance. Afterpeaking in late 1995, the Swiss franc depreciated against most leading curren-cies in 1996-97, since when it has remained fairly stable as measured by its realeffective exchange rate. In September 1996 the SNB cut its indicative discountrate to 1% and in April 1999, following a rate cut by the European CentralBank and the Bank of England, the discount rate was cut again to 0.5%, an all-time low. In public policy statements in 1999 the SNB declared its intention tomaintain low interest rates to bolster economic recovery and preclude anappreciation of the Swiss franc.

Although the introduction of the euro in January 1999 appears to have gonerelatively smoothly the longer-term consequences for the Swiss franc of econo-mic and monetary union (EMU) among 11 EU members remain uncertain. TheSNB has resisted pressure from some industrialists to link the franc to the euroto prevent excessive appreciation, arguing that this would encourage specu-lation and entail a rise in Swiss interest rates to the detriment of investmentand competitiveness. However, Switzerland’s economic and financial links withEMU countries, and its aim of joining the EU in the longer term, favour apolicy of implicit euro-shadowing and a process of slow convergence of interest

The SNB targets moneysupply growth—

—but has been keeping aneye on the exchange rate

since 1996

Consequences of EMU forthe Swiss franc

Switzerland 23


rates towards single-currency levels. (Historical data on interest rates are shownin Reference table 9.)

Influential economic groupings

Within the federal government, responsibility for economic policy is split between theMinistry of Economic Affairs (economic analyses and forecasts for government use,regional, agricultural and employment policies) and the Ministry of Finance (taxationand fiscal policy).

The Swiss National Bank (SNB, the independent central bank) is responsible formonetary policy. A three-person governing board decides the (indicative) discount rate.About 60% of the bank’s capital stock is held by cantons, cantonal banks and publicagencies.

The Swiss Employers’ Association is the main representative employers’organisation, but it is overshadowed on economic matters by the Swiss Union ofCommerce and Industry (VORORT), with which it is discussing a merger. The SwissFarmers’ Union, which is close to the People’s Party, represents most Swiss farmers,but the Union of Swiss Producers is active in French-speaking areas.

The Swiss Trade Union Federation is the largest of several trade union groupings,with 395,420 members, and has links to the Social Democratic Party. The Federation ofPublic Employees has 163,790 members, and the Federation of Staff Associations(white-collar employees) has 120,150 members.

Economic performance

Switzerland enjoyed quite strong economic growth in the second half of the1980s, helped by a weakening of the Swiss franc, buoyant private consumptionand a construction boom. By 1990 the economy had begun to slow as restric-tive monetary policies to curb inflation started to take effect. In 1991 the Swisseconomy dipped into recession, led by a steep decline in construction (mainlyas a result of historically high interest rates) and a drop in exports as the worldeconomy weakened.

Gross domestic product(% real change)

1994-981998 annual average

GDP 2.1 1.0

Source: Swiss Federal Statistics Office.

There followed six years of economic stagnation as high interest rates and thestrong currency continued to depress domestic demand and reduce thecompetitiveness of Swiss exports in flagging European markets. Real GDP didnot surpass its 1990 level until 1997. Modest growth in 1997 and 1998 wasencouraged by a decline in the international value of the Swiss currency and

Reasons for the decline ingrowth rates

24 Switzerland


buoyant exports. By late 1998, however, the repercussions of the Asian crisis inother parts of the world had begun to feed through into foreign deliveries andthere was a sharp slowdown in overall economic activity.

This was despite some revival in household consumption, which had languis-hed through most of the 1990s in the face of rising unemployment and stagna-ting real incomes. The building sector, meanwhile, is still suffering from anoverhang of empty property, especially in the industrial and commercial sec-tors. (Historical data on GDP are given in Reference tables 10 and 11.)

Despite economic stagnation during most of the 1990s, Swiss GDP per head—at just over $37,200 in 1998 when measured at market exchange rates—wasthe second highest in the world, just after that of Luxembourg.

Measured at purchasing power parity exchange rates, Switzerland ranked fifthafter Luxembourg, the US, Kuwait and Norway.

Inflation peaked at almost 6% in 1991 and has since been on a steady down-ward track, falling below 2% in 1996. The introduction of VAT in 1995 gave aone-off boost of about 1% to the consumer price index, and a 1 percentagepoint rise in the VAT rate to 7.5% is expected to add as much as 0.5% toinflation in 1999. Prices rose on average by only 0.1% in 1998, the lowestincrease since 1959, helped by the falling cost of imports, notably oil. Nominalwage rises have also slowed. During the 1990s many employers broke the trad-ition of compensating workers for past inflation and moved increasingly to asystem based on company profitability and employee performance. In 1998real earnings were only 0.7% higher than in 1992 which, given higherunemployment, implies a fall in real disposable household incomes. (Historicaldata on prices and earnings are given in Reference table 12.)

Prices and wages(% change, year on year)


Consumer prices 0.1 0.8

Import prices –2.2 –0.7

Producer prices –1.2 –0.8

Nominal salary growth 0.7 1.0

Real salary growth 0.7 0.2

Sources: Swiss Federal Statistics Office; EIU, CountryData.

Post-war Switzerland enjoyed full, even overfull, employment until the reces-sion of the 1990s when the jobless rate climbed to unprecedented levels.According to national definitions, unemployment peaked at 5.7% in February1997 before falling steadily to below 3% in early 1999. Although the “true” rateof unemployment is undoubtedly higher than the official jobless count, it isstill low by comparison with Switzerland’s neighbours and, indeed, mostindustrialised countries. Unemployment rates are higher among foreignworkers and French- and Italian-speakers, than among Swiss nationals and

Swiss GDP per headremains very high

Inflation has declinedto zero

Unemployment is alsofalling

Switzerland 25


German-speakers, but the differentials have narrowed as the labour market hasimproved. In contrast to most western European nations, youth unemploy-ment is lower than the adult rate, reflecting Switzerland’s comprehensive train-ing and apprenticeship system. (For historical data on employment andunemployment see Reference tables 2 and 3.)

Regional trends

Switzerland’s three linguistic regions have quite different political and culturalroots, which is often reflected in the results of referendums. French speakers,closely attuned to things French, tend to be more outward looking and liberalon social issues than their German-speaking counterparts who, in the ruralareas at least, preserve a strong isolationist streak and conservative socialvalues. In June 1999, for instance, the introduction of maternity benefit wasbacked by voters in French and Italian-speaking cantons but decisively rejectedby the German-speaking majority.

Switzerland’s cantons also have distinct economic identities, a remnant fromtheir long history as separate states. Some, such as Geneva, publish their owneconomic accounts including foreign trade figures. The cantons vary widely insize, economic importance and wealth. In terms of income per head, Zug,famous for its low taxes, topped the league in 1995 at Swfr67,452 ($57,160),compared with the Swiss average of Swfr42,514, according to national sources.Basle (Swfr54,769) and Zurich (Swfr55,944) came next. Local authorities derivethe bulk of their income from direct taxes, which vary significantly by cantonand commune. The revenue of the canton of Zurich is more than 70 times thatof Appenzell-Innerrhoden, a small rural half-canton. Zurich alone contributesone-fifth of Swiss national income.

Switzerland operates a regional policy allowing economically disadvantagedcantons to offer special tax breaks and other investment incentives. In 1999the government presented detailed proposals to reform the revenue-sharingsystem between central government and the cantons instituted 40 years ago. Ithopes for efficiency savings of up to 20% of the Swfr13bn now exchangedbetween the two levels of government, mainly by rationalising the allocationof responsibilities between them. In some areas, such as higher education andwaste disposal, the cantons will be obliged to co-operate with each other toavoid wasteful duplication and free-riding.

Economic sectors

Agriculture and forestry

Swiss agricultural policy has traditionally been geared towards ensuring an ade-quate food supply in case of war or import shortages, and maintaining theprosperity of the agricultural sector. Policy has been similar to the commonagricultural policy of the EU. The Federal Council still sets prices for grain, milk

The cantons

26 Switzerland


and milk products, and imported foodstuffs are subject to quotas and duties.Switzerland exports very little by way of agricultural products, with the notableexception of cheese. Half of Swiss cheese production is exported, 80% of this tothe EU, with the aid of government subsidies. (Historical data on agriculturalproduction are given in Reference table 13.)

Until 1993 the Federal Council guaranteed farmers sufficiently high prices tocover costs. In so doing, it established an equivalent wage for the agriculturalsector with reference to average wages in industry and services. However, it wasforced to introduce fundamental reforms by rising expenditure, chronic sur-pluses of dairy products and meat, and pressure for change in the GATT (nowWorld Trade Organisation, WTO) world trade negotiations. The new policyregime, which took effect in 1993, entailed a shift away from price supports tomaintain farmers’ incomes towards direct payments for specified services, suchas care of the environment. Even so, according to the OECD, subsidies andprice support still amounted to 78% of the total value of production in 1996,the highest proportion among industrialised countries. In January 1999 legis-lation entitled “Agriculture 2002” came into force, which has further shiftedthe weight of support away from high guaranteed prices and towards directpayments. The government also plans to freeze farm subsidies between 2000and 2003, at about Swfr3.5bn ($2.3bn) annually.

In the longer run the government hopes to bring Swiss food prices, nowdouble or triple the European average for some items, more closely into linewith those of neighbouring countries. Many Swiss opt to shop across theborder in France, Germany, Austria or Italy.

Agriculture and food subsidies amounted to Swfr4.2bn in 1998, 9.2% of totalfederal spending and more than half the value of agricultural production ofSwfr7.9bn. About 4% of the Swiss labour force works in agriculture, comparedwith 5% in France and 2% in the UK. Milk production accounts for over one-third of the value of output and cattle and pig production for over one-quarter.Domestic agricultural products supply, on average, nearly 60% of domesticfood consumption.

Food self-sufficiency, 1997(%)

Milk 97

Butter 85

Potatoes 95

Meat 79

Cheese 70

Vegetables 57

Cereals 51

Sugar 52

Eggs 41

Fruit 38

Oils & vegetable fats 21

Fish & shellfish 3

Source: Swiss Farmer’s Union, Statistiques et évaluations 1998.

Switzerland 27


Dairy and stock-raising prevail in the mountain regions, while crops (grapes,grain, fruit and vegetables) are chiefly grown in the lowlands. The number offarms decreased by 27% to 79,479 during 1990-96, with an even sharperdecline in the number of small part-time farms. About 70% of holdings areworked full-time. In 1997 forest and woodland covered 1.2m ha (12,126m sqkm or 30% of the total land area), of which one-quarter was privately owned.Wood production in 1997 was 4.4m cu metres, while domestic consumptionamounted to about 6m cu metres. Swiss forests are protected by a general banon the destruction of woodland and obligatory replanting of trees to replacelegal felling.

Manufacturing

Swiss manufacturing industry is highly specialised, mostly producing shortruns of a wide variety of high-quality goods. For a small country Switzerlandboasts a surprisingly large number of world-class multinational companies,notably in the food, pharmaceuticals and engineering sectors. However, largecompanies now produce the bulk of their output outside Switzerland and thevast majority of Swiss manufacturing companies are small, employing 10-100people. The machinery and metals sectors accounted for nearly 30% of totalmanufacturing employment of 715,000 in 1998. (For historical data onindustrial production see Reference table 14.)

Manufacturing employment peaked at 880,600 in 1990, but was hard hit bythe subsequent recession. Nevertheless, despite the generally strong Swiss francand a high cost base, Swiss companies have generally been remarkably success-ful at maintaining their share of overseas markets and turning in good finan-cial results. The strong franc has given companies a constant spur to cut costs,produce innovative products and shift towards high-quality products whereprice is only one of several considerations for the purchaser. Banks havesupported the restructuring of industries in trouble, rather than simply lettingcompanies die. The most impressive example of an industrial turnaround is theSwiss watchmaking industry, which was nearly killed off in the 1970s byJapanese competition. A revival plan, spearheaded by the Swiss-made Swatch,re-established pre-eminence in this traditional industry. Precision instruments,watches and jewellery remain Switzerland’s third largest export sector but theonce-important textiles and clothing industry has shrunk dramatically.

Companies’ competitiveness has also been boosted by continuing emphasis onresearch and development (R&D), and Switzerland scores highly in inter-national comparisons of innovation. Total R&D spending in Switzerland byprivate companies, government and universities was Swfr9.7bn ($6.3bn), or2.7% of GDP in 1996, the third highest in the OECD after Sweden and Japan.However, the rising share of R&D carried out abroad has raised concerns thatSwitzerland is not fully participating in manufacturing based on advancedtechnologies, with the Swiss pharmaceuticals giants, for instance, havingbought biotechnology facilities in the US rather than establish them at home.Nevertheless, western Switzerland has a growing concentration of high-techcompanies in such areas as medical engineering, computers and telecoms.

28 Switzerland


Industrial production(1995=100; % change year on year in brackets)


Chemicals 135.8 n/a(8.0) (11.5)

Food 92.8 n/a(-1.2) (–1.3)

Textiles & clothing 92.2 n/a(–4.5) (–0.9)

Wood 106.7 n/a(5.6) (2.4)

Paper & printing 109.2 n/a(9.5) (4.0)

Rubber & plastics 104.1 n/a(4.9) (1.8)

Metalworking 108.6 n/a(6.9) (2.3)

Electricity, gas & water 102.4 n/a(0.8) (1.2)

Electrical equipment, precision & optical instruments 110.0 n/a(2.5) (n/a)

Total (excl construction) 108.4 n/a(3.6) (2.9)

Source: Swiss National Bank, Statistisches Monatsheft.

Construction

Switzerland has a relatively large construction sector, although it has shrunkconsiderably during the 1990s. Construction employment, which has trad-itionally been reliant on a large number of foreign workers, has also slumped,to 297,000 in 1998 from 327,000 five years earlier. Fluctuations in constructionactivity, strongly influenced by interest rate changes, have been critical indetermining the course of the Swiss economy, fuelling rapid growth in the1980s and then leading the country into recession in the early 1990s. Most ofthe fluctuations have been borne by the private sector, in both the housebuild-ing and commercial and industrial sectors. Much building, including resi-dential, is commissioned by property companies as rental investments. Thevacancy rate for private homes, at 1.8% in 1998, was the highest since the1970s, and a large overhang of empty business property is also deterring newconstruction.

High prices and lack of fiscal incentives mean fewer than one-third of Swisspeople own their own homes, one of the lowest proportions in Europe. Thefederal government provides some financial assistance for construction of low-cost housing, but such housing is in short supply. Construction costs are up toone-third higher than the OECD average, largely because of Switzerland’sdemanding building standards, bureaucratic red-tape, a fragmented artisanindustry and, at least until recently, weak competitive pressures. In particular,public procurement contracts have often gone to local firms instead of being

Switzerland 29


allocated by competitive tender. This is, however, changing under pressurefrom the federal government.

Infrastructure investment has been less volatile than other construction, butspending has been restrained during the 1990s as public authorities have triedto curb budget deficits. Switzerland nevertheless builds its infrastructure tohigh standards and maintains it with care; investment spending accounted fornearly 13% of federal outlays in 1998 and a budgeted 11% in 1999. Ongoingconstruction projects include plans to complete the missing five sections ofthe motorway network and improve the railway system (see Transport andcommunications). (Historical data on construction are given in Referencetable 15.)

Financial services

The financial services industry is one of Switzerland’s largest employers and animportant exporter. Swiss banks and insurance companies are active abroadand feature among the world’s leaders. Swiss banks, with their reputation forfinancial solidity, are pre-eminent in global asset management, managing someSwfr3trn ($1.9trn) at the end of 1998, of which more than half was for foreigncustomers. The domestic banking scene has, however, undergone sweepingstructural changes in the 1990s, with many small local banks closing ormerging and the large banks rationalising their Swiss retail networks whileexpanding overseas operations.

The total number of banks fell to 376 in 1998, from 495 in 1990, when thebanks were obliged to abandon a series of price-fixing arrangements resultingin increasing competition for customers and funds. The domestic recession andthe property crash that accompanied it were the last straw for many smallregional banks with limited deposit bases, which relied heavily on mortgagelending and loans for local businesses. These developments have increased thealready high concentration of the Swiss banking sector where the two largestbanks—Union Bank of Switzerland (UBS) and Credit Suisse—account for two-thirds of the combined balance-sheet total.

Switzerland is still over-banked, with one branch for every 2,000inhabitants (compared with 4,700 in the US). Nevertheless, bank payrollsshrank from a high of 127,626 in 1990 to 118,687 in 1998 and, in thelong run, the Swiss Bankers’ Association believes up to one-third of currentbank employment could disappear. Banks remain the principal source offinance for small- and medium-sized businesses in Switzerland but big Swisscompanies also raise money from the stock and bond markets. Venturecapital for start-ups is scarce.

The banking sector

30 Switzerland


Banking statistics, 1998

Total banks (no.) 376 Cantonal banks 24 Big banks 3 Regional & savings banks 108 Raiffeisen banksa 1 Other banks 203 of which: foreign banks 128Foreign bank branches 21Private banks 16

Total foreign assets (Swfr m) 1,154,050 of which: big banks 976,418 other banks 137,994 of which: foreign banks 94,414

a Credit unions with more than 722 affiliated establishments in 1998.

Source: Swiss National Bank, Les Banques suisses.

Following the 1998 merger between UBS and Swiss Bank Corporation, theSwiss banking scene is now dominated by two universal banks, the mergedUBS and Credit Suisse. UBS, with an estimated 37% of the Swiss retail market,is the world’s third largest commercial bank (with assets of about $750bn), theworld’s largest asset manager (with Swfr1.1trn under management) andEurope’s top investment bank. Unlike Credit Suisse, it has decided not to goalong the “bancassurance” route to bring banking and insurance services underone roof, selling its 25% stake in Swiss Life in early 1999. Credit Suisse, whichbought Winterthur Insurance, one of Switzerland’s biggest insurers, in 1997 isamong the world’s top ten financial services firms.

The 24 cantonal banks under the control of cantonal governments account forover a quarter of domestic banking business. Two small cantonal banks wereprivatised in 1995 and 1996, while under a new banking law approved byparliament in 1999 cantons will no longer have to guarantee the banks’ oper-ations (although they must hold a capital and voting stake of at least 30%).Bigger cantonal banks, such as those in Zurich, Vaud and Geneva, have impor-tant asset management businesses as well as being involved in supplying creditto locally-based customers.

Regional banks specialise in mortgage lending and credits for small businesses.Since 1994, most of the country’s regional banks have been linked in acommon holding company providing back-office operations and other servicesto members in a bid to cut costs. However, their numbers are dwindling swiftly,having fallen by one-third over the past five years.

The 128 foreign banks make up one-third of banks active in Switzerland. Incontrast to domestic banks, their numbers have risen over the last decade buttheir business is increasingly focused on asset management, mostly of fundsfrom abroad.

The big banks

Cantonal banks

Regional banks

Foreign banks

Switzerland 31


The Swiss people are among the most heavily insured in the world.Nevertheless, Swiss insurers now rely on foreign business for 60% of theirpremium income. The insurance sector has been steadily deregulated duringthe 1990s. One of the last sets of controls was scrapped in 1996 when the fixedtariff regime for third-party vehicle insurance was abolished.

Switzerland has no restrictions on international capital flows, and curbs onbond-market issues by foreign banks have been relaxed. The open-outcry stockexchanges in Zurich, Geneva and Basle closed in August 1996 when a nationalelectronic stock exchange (EBS) for all securities trading began operating, the firstin the world to combine clearing, settlement and regulatory supervision withtransaction activities.

Financial regulation in Switzerland

Bank secrecy: Since 1934 bank secrecy, which can be revoked in criminal cases, hasbeen protected by law. Bribes to foreign companies and officials (which the Swissgovernment is pledged to outlaw), tax evasion and breaches of other countries’exchange controls are not yet criminal offences in Switzerland and the funds derivedfrom them have the full protection of Swiss bank secrecy rules.

Money laundering: In April 1998 a new money laundering law covering all financialinstitutions came into force that gives banks and others a duty—not just a right asbefore—to report financial transactions that they suspect are connected with organisedcrime. The judicial authorities may freeze assets pending an investigation. Banks that donot report suspicious transactions can be fined up to Swfr200,000 ($138,000).

Diligence convention: This “gentleman’s agreement” requires banks and thosehandling funds on behalf of others (for example, lawyers and accountants) to satisfythemselves as to the origin of funds and good reputation of depositors and beneficiariesof the funds.

Federal Banking Commission: Strict reserve requirements and liquidity ratios areimposed on the banks, which are subject to the supervision of the Federal BankingCommission. In 1998 the commission set up a special unit to oversee the two big banks,UBS and Credit Suisse. A government-appointed group of experts is examiningSwitzerland’s overall system of financial regulation in the light of increasingly close tiesbetween the various financial centres.

Stockmarket regulation: Insider trading was outlawed in 1988. Stock exchangeoperations are based on self-regulation by the Swiss Stock Exchange as codified in a1997 law, but overall surveillance is carried out by the Federal Banking Commission. The1997 law also sets out the first legal framework for the conduct of take-over bids,including provisions for the protection of minority shareholders.

In 1999 the Swiss stock exchange signed up its first “remote” members, andopened a new market for small growth stocks. The Zurich-based exchange alsoplans a cross-trading alliance with the Paris and Milan bourses, and is taking partin plans by six exchanges to establish a single trading platform for Europe’s top300 companies. Meanwhile, the Eurex derivatives exchange, formed by a merger

The insurance sector

The stockmarket

32 Switzerland


in September 1998 between the Swiss Options and Financial Futures Exchangeand Germany’s Terminbörse, has become the world’s largest, overtaking theChicago Board of Trade with which it now plans an alliance.

Overall stockmarket turnover, including shares, bonds and options, amountedto Swfr1.29trn in 1998, compared with Swfr1.02trn in 1997. The ten largestSwiss companies account for 80% of market capitalisation of the SwissPerformance Index, the most widely quoted share-price index. Of the 3,411shares and bonds quoted at the end of 1998, 1,297—over one-third—wereforeign. The stockmarket has been buoyed by a steady expansion in pension-fund investment, which will be reinforced by a decision by the state pensionscheme to shift a quarter of its investment portfolio into Swiss shares between1999 and 2002. (Historical data on the stock exchange are given in Referencetable 16.)

The Swiss stockmarket and banks aim to provide as good a service in euros astheir counterparts in economic and monetary union (EMU) member countries,ranging from customer accounts to stockmarket transactions. The SwissBankers’ Association has set up a Swiss Euro Clearing Bank (SECB) in Frankfurt,to link directly with Target, the euro payment system.

Other services

Tourism is Switzerland’s largest service industry and its third largest foreign-exchange earner after metalworking and machinery, and chemicals. One in 11Swiss workers is dependent on it directly or indirectly for income. In 1998Switzerland ranked 17th in the world as a tourist destination with over 10mvisitors. Most visitors to Switzerland are from Europe (one-third are fromGermany) and come as individuals, not in large groups. Despite Switzerland’sreputation as a skiing centre, the largest number come during the summermonths.

In recent years Switzerland’s reputation for high prices, reinforced by thestrong Swiss franc and recession in Europe, has deterred foreign arrivals andencouraged Swiss holidaymakers to go abroad. The number of overnight staysby tourists has fallen steadily from a 1991 peak of 78m to 67m in 1997. Hotel-bed occupancy averaged only 38.5% in 1997. (Historical data on tourism aregiven in Reference table 18.)

Switzerland’s retail distribution sector is dominated by a few large companies,although many small and specialist shops survive and even prosper. The fivelargest retail traders account for nearly 80% of the market—more than in anyother European country. Swiss retail prices are high; the OECD has estimatedthat goods and services for private consumption cost 40% more than theOECD average. Since 1995 shops have been free to hold sales when they please,rather than at set times dictated by the cantons, but opening hours are stillsubject to strict regulation. (Historical data on retail sales are given in Referencetable 17.)

Preparations for EMU

Tourism

The retail sector

Switzerland 33


The external sector

Trade in goods

Foreign trade, 1998(Swfr m)

Exports of goods fob 109,113

Imports of goods cif –106,866

Trade balance 2,247

Source: Federal Department of Economic Affairs, La Vie économique.

At just under 40%, external trade accounts for a smaller share of GDP than inother west European countries of similar size such as Belgium (70%) and theNetherlands (more than 60%). Nevertheless, Switzerland ranks among theworld leaders in terms of value of exports per head, which reflects the country’shigh level of income per inhabitant.

Most trade is with EU members, Germany being Switzerland’s largest singletrading partner. Switzerland is a net importer of food and has to buy most of itsenergy and industrial raw materials abroad. The bulk of its merchandise exportsconsists of manufactures. The trade account has traditionally been in deficit butrecession caused Switzerland to record a string of unusual surpluses from 1993,as exports continued to progress while imports rose more slowly. Switzerland’sexport industries have generally held their own in world markets by virtue ofincreased specialisation and ruthless efficiency, but exchange-rate movementshave been influential. A weak Swiss franc boosted exports in the late 1980s,although strongly rising imports ensured that the deficit remained high.

The subsequent recession, in which imports slumped, and the increase in theterms of trade resulting from the strengthening Swiss franc produced an unpre-cedented trade surplus (measured by customs data) of more than Swfr2.9bn($2.1bn) in 1994. In 1998 the surplus was Swfr2.25bn as weaker import growthaccompanied a slowdown in exports. According to balance-of-payment data,however, the trade balance was in deficit in 1998 to the tune of Swfr2.67bn.

Switzerland is traditionally a free-trade country for industrial goods, andtariffs—in so far as they still exist—are generally low. Only agriculture is stillprotected to any degree. Although protection will be reduced under the termsof the World Trade Organisation (WTO) farm trade agreement, tariffs willremain high. (Historical data on trade are given in Reference tables 19 and 20.)

Main trading partners, 1998

Exports fob to: % of total Imports cif from: % of total

EU 63.3 EU 79.9 of which: of which: Germany 23.6 Germany 32.7 France 9.6 France 11.6US 10.2 US 6.3


34 Switzerland


Switzerland’s relations with regional trading partners

European Free-Trade Association (EFTA): Switzerland has been a member of EFTAsince its inception in May 1960, under the Convention of Stockholm. Free trade inindustrial goods between EFTA members was achieved by 1966. The grouping now hasonly three other members—Iceland, Liechtenstein (with which Switzerland has acustoms and currency union) and Norway.

European Union: In 1972 the then European Economic Community (EEC) and EFTAmembers concluded a free-trade agreement for industrial goods, which came into forceon April 1st 1973. Tariffs on industrial products were eliminated by 1978. In May 1992Switzerland lodged a formal application to join the European Community (EC) but wasforced to put this on ice after membership of the European Economic Area (EEA) wasrejected in a referendum the following December.

European Economic Area (EEA): In 1990 the EC and EFTA began formal talks toextend the EC’s single-market programme to EFTA members. The EEA treaty, concludedin 1992 and in force since January 1st 1994, provides for the free movement of goods,services, capital and labour between EU and EFTA members. Switzerland is the only EFTAcountry outside the new arrangement.

Eastern Europe and others: Along with other EFTA members, Switzerland has free-trade accords with ten east European countries, Israel, the Palestinian Authority,Morocco and Turkey, and is negotiating several others including one with Canada. Farmtrade is excluded from these agreements.

Invisibles and the current account

Although Switzerland has tended to run a deficit on the merchandise account,the current account of the balance of payments has been in surplus since 1966,with the single exception of 1980. Net earnings from tourism, interest on for-eign investments, and banking and insurance activities have all been sub-stantial, although the tourism balance has shrunk during the 1990s. The labourincome balance is, however, in structural deficit owing to large outward trans-fers by foreign workers, amounting to an estimated Swfr6.5bn in 1998. Theactual current-account surplus is probably larger than recorded, since a propor-tion of the errors and omissions item could be allocated to current earnings. In1998 the current-account surplus was estimated at Swfr31.2bn, equivalent to8.1% of GDP, one of the highest proportions in the industrialised world. (ForIMF and national balance-of-payments data, see Reference tables 21 and 22.)

Current account, 1998(Swfr m)

Current-account balance 31,167 of which: services balance 18,732 income balance 19,865


Switzerland 35


Capital flows and foreign debt

As befits a country running a huge current-account surplus, the Swiss investheavily overseas. Surpluses were initially used mainly for the purchase offoreign shares and bonds, but in the late 1980s direct investments began to risestrongly as Swiss companies began to expand production operations abroad.Some 1.6m workers are employed in overseas subsidiaries of Swiss companies,which invested Swfr24.3bn abroad in 1997. The total stock of Swiss directinvestments abroad reached Swfr232bn at the end of that year. Switzerland’sattraction as a host for inward investment has waned during the 1990s, mainlybecause of high production costs and uncertainty about Switzerland’s futureoutside the EEA. Inflows of foreign direct investment (FDI) into Switzerlandturned negative in 1993, the year after the EEA referendum vote, for the firsttime since the statistical record began in 1984. Inflows have since averagedabout Swfr4.5bn annually, well below the levels seen in the 1980s. Swiss skillsand labour force docility (strikes are virtually unknown) are nevertheless seenas compensations by a number of high-tech firms in such areas as medicalengineering and advanced electronics, where quality of output is all-important.

Foreign reserves and the exchange rate

Reserves are comfortable and Switzerland appears to have little interest inincreasing them (see Reference table 23). A change in the constitutionapproved in April 1999 to remove gold backing for the currency will permit theSwiss National Bank (SNB, the central bank) to sell 1,300 tonnes of gold,equivalent to half its reserves, over a period of years from 2000. The bank usesmarket intervention and interest rates to curb excessive currency volatility.Although the SNB has not had a formal exchange-rate target, the franc tendedto follow movements in the German D-mark, and now the euro, against otherkey currencies, notably the US dollar. The bank, which once saw the habitualstrength of the currency as a way of achieving its price stability objective, hasmore recently moved decisively to prevent significant appreciation of the francagainst the D-mark and euro (see Economic policy). (For historical data onexchange rates see Reference table 24.)

36 Switzerland


Appendices

Sources of information

Federal Customs Administration, Statistique du commerce extérieur de la Suisse(monthly), Berne

Federal Department of Economic Affairs, La Vie économique (monthly), Berne

Federal Energy Office, Swiss Global Energy Statistics (annual), Berne

Federal Finance Administration, Finances publiques en Suisse (annual), Berne

Federal Finance Administration, Les finances de la Confédération en bref, Berne

Federal Office of Agriculture

Gotthard Bank, Foreign Banks in Switzerland (annual), Lugano

Oberzolldirektion (Directorate-general of Swiss Customs)

Société pour le développement de l’économie suisse, Miroir statistique de laSuisse (annual), Geneva

Swiss Bank Corporation, Switzerland: Economy, People, Culture, State (annual),Basle

Swisscom, formerly Swiss Telecom, Facts and Figures (annual), Berne

Swiss Farmers’ Union, Landwirtschaftliche Monatszahlen (monthly), Brugg

Swiss Federal Statistics Office, La Balance touristique en Suisse de 1998, Berne

Swiss Federal Statistics Office, Comptes nationaux de la Suisse (annual), Berne

Swiss Federal Statistics Office, Statistical Yearbook of Switzerland, Berne

Swiss Federal Statistics Office, Statistique de l’emploi et de la population activeoccupée (quarterly), Berne

Swiss Federal Statistics Office, Statistique de la production et de la valeur ajoutée(annual), BerneSwiss National Bank, Les Banques suisses (annual), Zurich

Swiss National Bank, Statistisches Monatsheft (monthly bulletin), Zurich

Swiss Stock Exchange, Annual Report, Monthly Report and Factbook, Zurich

Swiss Tourism Federation, Swiss Tourism in Figures (annual), Berne

Energy Data Associates, 1 Regent Street, London SW1Y 4NR

International Institute for Strategic Studies, The Military Balance (annual)

International Monetary Fund, International Financial Statistics (monthly)

OECD, Economic Survey of Switzerland (annual), Paris

OECD, Quarterly National Accounts, Paris

UN Food and Agriculture Organisation, Production Yearbook

National statistical sources

International sources

Switzerland 37


Aubrey Diem, Switzerland: Land, People, Economy, Aljon Print-Craft, Ontario,1986

Dieter Fahrni, An Outline History of Switzerland: From the Origins to the PresentDay, Pro Helvetia, Zurich, 1992

Jürg Martin Gabriel, How Switzerland is Governed, Schweizer Spiegel Verlag,Zurich, 1983

John McPhee, The Swiss Army: La Place de la Concorde Suisse, Faber & Faber,London, 1985

Jonathan Steinberg, Why Switzerland? Cambridge University Press, Cambridge,1976

Richard Wildblood, What Makes Switzerland Democratic? Quacks Books, York,1993

Reference tables

Reference table 1

Resident population by age and nationality(‘000; annual average)

1994 1995 1996 1997 1998

Age group0-19 1,629 1,642 1,651 1,655 1,65620-39 2,218 2,210 2,190 2,159 2,13340-64 2,166 2,191 2,215 2,239 2,26565+ 1,025 1,038 1,049 1,061 1,073Total 7,037 7,081 7,105 7,113 7,127 Swiss 5,682 5,693 5,705 5,717 5,727 Foreign 1,355 1,388 1,400 1,397 1,400Sources: Federal Department of Economic Affairs, La Vie économique; Federal Statistics Office, Statistical Yearbook of Switzerland 1998.

Reference table 2

Total employment(‘000)

% change1994 1995 1996 1997 1998 1994/98

Total working population 3,785 3,800 3,813 3,802 3,850 1.7 Women 1,535 1,542 1,578 1,584 1,611 5.0 Men 2,250 2,258 2,235 2,219 2,239 –0.5

Agriculture & forestry 157 163 172 176 179 14.0

Industry (incl construction) 1,093 1,110 1,067 1,017 1,012 –7.4

Services 2,538 2,527 2,574 2,609 2,660 4.8

Foreign working populationa 947 939 911 874 863 –8.9 Residents 552 546 533 522 520 –5.8 Annual permits 180 187 182 177 172 –4.4 Seasonal permits 61 54 45 31 29 –52.5 Crossborder workers 154 152 150 143 142 –7.8

a August.


Select bibliography

38 Switzerland


Reference table 3

Unemployment

1994 1995 1996 1997 1998

Registered unemployed (no.) 171,038 153,316 168,630 188,304 139,660

Unemployment rate (%) 4.7 4.2 4.7 5.2 3.9 German-speaking regions 3.8 3.3 3.9 4.5 3.2 French- & Italian-speaking regions 7.1 6.6 6.7 7.0 5.4


Reference table 4

Transport

1994 1995 1996 1997 1998

RoadNew car & commercial vehicle registrations (‘000) 283.8 288.1 292.7 292.3 318.8Freight (m tonnes) 336.9 338.4 333.3 332.9 n/aFreight (bn tonne/km) 13.0 12.9 13.5 14.2 n/a

RailPassengers (m) 392.2 376.9 377.2 n/a n/aFreight (m tonnes) 47.8 47.5 44.2 n/a n/aFreight (bn tonne/km) 8.6 8.7 7.9 n/a n/a

AirPassengers (m) 23.9 25.2 25.6 28.1 29.8Freight and post (‘000 tonnes) 442 464 464 467 484

Sources: Federal Statistics Office; Federal Office for Civil Aviation, L’Aviation civile suisse.

Reference table 5

Telecommunications(‘000)

1994 1995 1996 1997 1998

Telephones 4,258 4,318 4,547 4,688 4,741

Radio telephones 332 447 663 1,044 1,605

TV licences 2,589 2,623 2,647 2,813 2,837

Source: Federal Office for Communications.

Switzerland 39


Reference table 6

Production, trade and consumption of fuels and electricity

1994 1995 1996 1997 1998

ProductionElectricity (bn kwh) 62.4 58.8 53.4 59.1 59.3Oil products (‘000 tonnes) 4,930 4,556 5,249 5,038 5,295

ImportsCrude oil & oil products (‘000 tonnes) 12,739 11,704 12,602 12,904 13,264Coal (‘000 tonnes) 164 244 162 113 98Electricity (bn kwh) 22.7 28.9 33.5 30.7 37.4Natural gas (bn kwh) 25.7 28.4 30.7 29.6 30.5

ExportsElectricity (bn kwh) 34.6 36.2 34.4 37.4 43.4

Final consumptionOil products (‘000 tonnes) 11,495 11,670 11,854 11,824 12,163Coal (‘000 tonnes) 265 285 215 166 137Natural gas (bn kwh) 24.1 26.5 28.5 27.3 28.2Electricity (bn kwh) 46.9 47.9 48.7 48.6 49.6

Source: Federal Energy Office, Swiss Global Energy Statistics.

Reference table 7

Government finances(outturn in Swfr bn unless otherwise indicated)

1994 1995 1996 1997 1998

FederalRevenue 34.6 36.2 38.5 38.9 44.1Expenditure 41.3 40.9 44.2 44.4 46.6Balance –6.7 –4.7 –5.8 –5.5 –2.5 % of GDP –1.9 –1.3 –1.6 –1.5 –0.7Debt 73.3 79.9 86.0 93.1 109.6 % of GDP 20.8 22.1 23.6 25.1 28.7

CantonsRevenue 48.8 50.1 52.9 53.7 54.2Expenditure 52.5 52.1 55.1 56.8 58.4Balance –3.7 –2.0 –2.2 –3.1 –4.2 % of GDP –1.0 –0.5 –0.6 –0.8 –1.1Debt 51.6 53.4 56.8 60.2 64.4 % of GDP 14.6 14.7 15.6 16.2 16.8

CommunesRevenue 37.0 37.6 38.2 39.2 39.4Expenditure 37.9 38.4 38.7 39.2 40.0Balance –0.9 –0.8 –0.5 0.0 –0.6 % of GDP –0.3 –0.2 –0.1 0.0 –0.2Debt 36.0 37.0 37.5 37.5 38.1 % of GDP 10.1 10.2 10.3 10.1 10.0

Total (% of GDP)Balancea –3.1 –2.1 –2.3 –2.3 –3.3Debt 45.6 46.9 49.4 51.5 53.4

a Excluding double-counting.


40 Switzerland


Reference table 8

Money supply(Swfr bn unless otherwise indicated; year-end)

1994 1995 1996 1997 1998

Currency in circulation 25.8 26.0 26.7 27.6 28.0

Money supply (M1) 135.4 144.7 161.6 177.8 191.7 Growth (%) 5.6 6.8 11.7 10.0 7.8

Money supply (M2) 304.4 319.4 357.5 380.9 392.6 Growth (%) 10.2 4.9 11.9 6.5 3.1

Seasonally adjusted central bank moneya 30.1 30.1 31.2 32.7 33.7

a Swiss National Bank target measure.


Reference table 9

Interest rates(%; period average unless otherwise indicated)

1994 1995 1996 1997 1998

Discount ratea 3.50 1.50 1.00 1.00 1.00

Three-month Euro-deposits 4.04 2.95 1.92 1.58 1.43

Confederation bonds 4.93 4.57 4.00 3.40 2.81

a End-period.


Reference table 10

Gross domestic product(market prices)

1994 1995 1996 1997 1998

Total (Swfr bn)At current prices 357.5 363.5 364.8 370.5 382.3At constant (1990) prices 314.5 316.3 316.1 321.6 328.2Real change (%) 0.5 0.6 0.0 1.7 2.1

Per head (Swfr)At current prices 50,798 51,333 51,339 52,098 53,700At constant (1990) prices 44,695 44,662 44,494 45,231 46,100Real change (%) –0.2 -0.1 –0.4 1.7 1.9


Switzerland 41


Reference table 11

Gross domestic product by expenditure(Swfr bn at constant 1990 prices; % change year on year in brackets)

1994 1995 1996 1997 1998

Private consumption 182.9 183.9 184.7 186.9 190.3(1.0) (0.5) (0.4) (1.2) (1.8)

Public consumption 49.4 49.3 50.0 50.0 50.3(2.0) (–0.1) (1.4) (–0.1) (0.6)

Gross fixed investment 80.8 82.2 79.9 81.1 84.2(6.5) (1.8) (–2.7) (1.5) (3.8)

Stockbuilding –3.0 0.4 1.2 1.2 7.2(0.1)a (1.1)a (0.2)a (0.0)a (1.9)a

Exports of goods & services 119.8 121.8 124.8 136.1 141.6 (1.8) (1.6) (2.5) (9.0) (4.1)

Imports of goods & services –115.4 –121.3 –124.5 –133.5 -145.3 (7.9) (5.1) (2.7) (7.2) (8.8)

GDP 314.5 316.3 316.1 321.6 328.2 (0.5) (0.6) (0.0) (1.7) (2.1)

a Change as a percentage of GDP in the previous year.


Reference table 12

Prices and earnings

1994 1995 1996 1997 1998

Consumer prices (May 1993=100) 100.8 102.6 103.4 103.9 104.0 % change, year on year 0.9 1.8 0.8 0.5 0.1

Import prices (May 1993=100) 99.8 100.0 96.3 98.2 96.1 % change, year on year –0.1 0.3 –3.7 2.0 –2.2

Producer prices (May 1993=100) 99.5 99.4 97.6 96.9 95.7 % change, year on year –0.5 –0.1 –1.8 –0.7 –1.2

Nominal salary growth (% change, year on year) 1.5 1.3 1.3 0.5 0.7

Real salary growth (% change, year on year) 0.5 –0.5 0.5 0.0 0.7

Sources: Swiss National Bank, Statistisches Monatsheft; Federal Department of Economic Affairs, La Vie économique.

42 Switzerland


Reference table 13

Agricultural production(‘000 tonnes unless otherwise indicated)

1993 1994 1995 1996 1997

Wheat 584 574 618 657 584

Barley 379 292 303 323 314

Maize 183 257 225 203 194

Potatoes 908 800 569 812 687

Sugarbeet 976 800 824 1,142 1180

Meat 462 454 485 444 434

Milk n/a 821 822 817 803

Cheese 135 135 145 147 150

Butter 39 40 42 40 40

Eggs (m) 615 615 557 619 626

Wine (‘000 hl) 1,085 1,117 1,110 1,225 962

Source: Swiss Farmers’ Union, Statistiques et évaluations 1998.

Reference table 14

Industrial production(1995=100; % change year on year in brackets)

1994 1995 1996 1997 1998

Chemicals 91 100 110 126 136(15.2) (9.9) (10.2) (14.1) (8.0)

Food 98 100 100 94 93(–1.0) (2.0) (0.0) (–6.5) (–1.2)

Textiles & clothing 104 100 97 96 92(7.2) (–3.8) (–2.8) (–0.7) (–4.5)

Wood 103 100 98 101 107(8.4) (–2.9) (–2.2) (3.2) (5.6)

Paper & printing 97 100 100 100 109(7.8) (3.1) (0.0) (0.0) (9.5)

Rubber & plastics 91 100 94 99 104(–5.2) (9.9) (–5.6) (5.1) (4.9)

Metalworking 97 100 97 102 109(0.0) (3.1) (–2.6) (4.3) (6.9)

Electricity, gas & water 104 100 97 102 102(7.2) (–3.8) (–2.5) (4.2) (0.8)

Electrical equipment, precision & optical instruments) n/a 100 98 107 110

(n/a) (n/a) (–2.4) (9.9) (2.5)

Total (excl construction) 98 100 100 105 108(4.3) (2.0) (0.0) (4.6) (3.6)

Sources: Federal Statistics Office, Statistical Yearbook of Switzerland; Swiss National Bank, Statistisches Monatsheft.

Switzerland 43


Reference table 15

Construction(Swfr m)

1994 1995 1996 1997 1998

Housing 20,270 20,414 17,813 16,644 17,737

Industry 6,962 6,482 5,897 5,728 5,969

Other private 4,091 3,836 3,737 3,752 3,476

Total private 31,323 30,732 27,447 26,124 27,182

Total public 16,870 15,944 15,444 15,100 16,741

Total construction 48,193 46,676 42,891 41,224 43,923


Reference table 16

Swiss Stock Exchange(Swfr bn unless otherwise indicated)

1994 1995 1996 1997 1998

Total turnover 488.0 593.2 808.5 1,018.4 1,286.9

Market capitalisation (year-end) 372.6 458.1 539.9 839.2 946.6

SPIa (year-end) 1,726 2,123 2,512 3,898 4,497

SMIb (year-end) 2,629 3,298 3,942 6,266 7,161

a Swiss Performance Index (June 1st 1987=1,000). b Swiss Market Index (June 30th 1988=1,500).

Sources: Swiss Stock Exchange, Annual Report; Monthly Report, December 1998.

Reference table 17

Retail trade turnover(% change, year on year)

1994 1995 1996 1997 1998

Food, drink & tobacco 1.6 1.1 –1.3 0.5 1.1

Clothes & textiles –3.7 –5.1 –4.3 0.0 –0.4

Other groups 2.5 1.6 –0.7 2.8 2.8

Total 0.9 0.2 –1.6 1.2 1.4


Reference table 18

Tourism receipts(Swfr m unless otherwise indicated)

1994 1995 1996 1997 1998

Foreign tourists 11,434 11,185 10,989 11,456 11,426

Swiss tourists 9,000 9,100 9,000 9,100 9,000

Total tourism receipts 20,434 20,285 19,989 20,556 20,426

Tourism balancea 2,656 2,411 1,564 1,316 966 % of GDP 0.7 0.7 0.4 0.4 0.3

a Expenditure by non-Swiss visitors in Switzerland minus expenditure by Swiss travellers abroad.

Sources: Federal Department of Economic Affairs, La Vie économique; Federal Statistics Office, La Balance touristique en Suisse de 1998.

44 Switzerland


Reference table 19

Composition of trade(Swfr m)

1994 1995 1996 1997 1998

Exports fobAgricultural produce 3,583 3,535 3,511 3,818 3,807Fuel & energy 116 88 112 257 228Textiles, clothing & shoes 4,292 3,953 3,672 3,933 3,969Paper 2,345 2,527 2,476 2,828 3,011Leather, rubber & plastics 2,859 2,868 2,711 2,979 3,168Chemicals 23,492 23,586 25,954 29,647 31,302Construction materials 712 734 705 781 787Metals & metal manufactures 7,780 8,346 8,189 9,067 9,557Machines 26,123 27,396 28,047 30,882 31,922Vehicles 1,722 1,936 2,444 2,525 2,801Watches, jewellery & precision instruments 15,514 14,945 14,681 16,712 16,725Total incl others 90,213 92,012 94,174 105,133 109,113

Imports cifAgricultural produce 8,343 8,070 8,284 8,887 9,259Fuel & energy 3,044 2,656 3,352 4,888 3,363Textiles, clothing & shoes 8,369 7,918 7,837 8,420 8,604Paper 3,873 4,175 4,040 4,235 4,429Leather, rubber & plastics 3,596 3,638 3,462 3.707 3,856Chemicals 12,540 12,982 13,520 16,793 17,797Construction materials 1,984 2,012 1,976 2,028 2,122Metals & metal manufactures 7,936 8,912 8,042 8,944 9,517Machines 19,010 20,474 20,749 23,083 24,657Vehicles 9,183 10,600 11,200 11,324 12,283Watches, jewellery & precision instruments 5,778 5,597 5,761 6,845 6,818Total incl others 87,279 90,776 91,967 103,088 106,866


Switzerland 45


Reference table 20

Main trading partners(Swfr m; % of total in brackets)

1994 1995 1996 1997 1998

Exports fob to:Germany 21,885 22,561 21,969 24,143 25,793

(24.3) (24.5) (23.3) (23.0) (23.6)France 8,473 8,907 8,864 9,658 10,489

(9.4) (9.7) (9.4) (9.2) (9.6)US 7,889 7,747 8,426 10,319 11,097

(8.7) (8.4) (9.0) (9.8) (10.2)Italy 6,975 7,171 7,252 8,030 8,545

(7.7) (7.8) (7.7) (7.6) (7.8)UK 4,846 4,748 5,349 5,797 6,210

(5.4) (5.2) (5.7) (5.5) (5.7)Japan 3,287 3,551 3,837 4,011 3,847

(3.6) (3.9) (4.1) (3.8) (3.5)EU 56,565 57,605 57,865 63,865 69,094

(62.7) (62.6) (61.4) (60.7) (63.3)Total incl others 90,213 92,012 94,174 105,133 109,113

Imports cif from:Germany 30,056 31,630 30,116 32,943 34,962

(34.4) (34.8) (32.8) (32.0) (32.7)France 9,941 10,627 10,998 11,891 12,352

(11.4) (11.7) (12.0) (11.5) (11.6)Italy 9,132 9,545 10,342 10,776 11,144

(10.5) (10.5) (11.3) (10.5) (10.4)US 5,016 5,298 6,066 7,367 6,777

(5.7) (5.8) (6.6) (7.1) (6.3)UK 4,035 4,030 4,504 5,113 4,925

(4.6) (4.4) (4.9) (5.0) (4.6)Japan 3,107 2,958 2,539 2,987 2,968

(3.6) (3.3) (2.8) (2.9) (2.8)EU 70,078 73,357 73,717 81,255 85,352

(80.3) (80.8) (80.2) (78.8) (79.9)Total incl others 87,279 90,776 91,967 103,088 106,866


46 Switzerland


Reference table 21

Balance of payments, IMF series($ m)

1993 1994 1995 1996 1997

Goods: exports fob 75.42 82.63 97.14 95.54 95.04

Goods: imports fob –73.85 –79.30 –93.92 –93.29 –92.63

Trade balance 1.57 3.33 3.22 2.25 2.41

Services: credit 21.48 22.62 26.02 26.26 25.66

Services: debit –11.54 –12.77 –15.04 –15.70 –14.56

Income: credit 25.15 26.75 31.58 33.01 33.59

Income: debit –16.01 –18.93 –19.78 –20.38 –20.02

Current transfers: credit 2.48 2.53 3.00 2.95 2.62

Current transfers: debit –5.23 –5.95 –7.22 –6.97 –5.98

Current-account balance 17.91 17.57 21.78 21.42 23.71

Direct investment in Switzerland 0.90 4.10 3.60 4.09 5.51

Direct investment abroad –8.76 –10.79 –12.21 –15.98 –14.50

Inward portfolio investment (incl bonds) 12.5 0.91 4.96 12.90 9.03

Outward portfolio investment –30.34 –19.06 –8.86 –22.40 –20.96

Other investment assets 7.41 –31.09 –0.06 –70.58 –54.09

Other investment liabilities –0.69 39.32 0.20 64.67 51.67

Financial balance –18.96 –16.60 –12.36 –27.30 –23.34

Capital account nie credit 0 0 0 0 0

Capital account nie debit –0.13 –0.15 –0.13 –0.12 –0.08

Capital account nie balance –0.13 –0.15 –0.13 –0.12 –0.08

Net errors & omissions 1.69 0.24 –9.24 8.76 1.86

Overall balance 0.48 1.06 0.05 2.75 2.16

Financing (– indicates inflow)Movement of reserves –0.48 –1.06 –0.05 –2.75 –2.16

Source: IMF, International Financial Statistics.

Reference table 22

Balance of payments, national estimates(Swfr m)

1994 1995 1996 1997a 1998b

Goods: exports fob 99,387 99,847 102,171 114,215 118,076

Goods: imports fob –97,151 –98,807 –101,024 –114,693 –120,745

Trade balance 2,236 1,040 1,147 –478 –2,669

Services: credit 30,936 30,770 32,455 37,235 38,515

Services: debit –15,300 –15,565 –17,084 –18,444 –19,783

Income: credit 36,582 37,336 40,800 48,748 49,993

Income: debit –25,893 –23,387 –25,193 –29,060 –30,128

Current transfers: credit 3,455 3,452 3,644 3,803 4,098

Current transfers: debit –8,137 –8,535 –8,617 –8,682 –8,860

Current-account balance 23,878 25,200 27,152 33,122 31,167


Switzerland 47


Reference table 23

Foreign reserves($ m unless otherwise indicated; year-end)

1994 1995 1996 1997 1998

Foreign exchange 33,554 34,685 36,775 36,899 38,346

SDRs 236 269 126 230 271

Reserve position in the IMF 939 1,459 1,531 1,899 2,574

Total reserves excl gold 34,729 36,413 38,433 39,028 41,191

Gold (national valuation) 9,077 10,347 8,841 8,182 8,667

Gold (m fine troy oz) 83.28 83.28 83.28 83.28 83.28

Source: IMF, International Financial Statistics.

Reference table 24

Exchange rates(Swfr per currency unit unless otherwise indicated; annual averages)

1994 1995 1996 1997 1998

DM 0.842 0.825 0.821 0.837 0.824

FFr 0.246 0.237 0.241 0.249 0.246

L1,000 0.847 0.726 0.801 0.852 0.834

£ 2.09 1.86 1.93 2.38 2.40

$ 1.37 1.18 1.24 1.45 1.45

¥100 1.34 1.26 1.14 1.20 1.11


Editor: Kate AllardAll queries: Tel: (44.20) 7830 1007 Fax: (44.20) 7830 1023

switzerland - iuj

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