Switzerland: An Economic Overview

Switzerland

An Economic Overview

Abstract

Switzerland is one of the most prosperous countries in Europe. With a stable government, sound economy and highly skilled labor force and strong tourism, Switzerland is driving force in the world economy. However, in the coming years Switzerland will face three challenges that threaten their positive economic outlook, they are 1) agriculture protectionism,

2) Non membership in the EU and 3) aging population.

This paper takes a brief look at these three factors and how they will effect Switzerland’s future economic growth and the country’s well being.

Switzerland has one of the world’s most stable economies. Because of the country’s small size and highly specialized workforce, exports and trade are key to Switzerland’s economic livelihood.

In 2006, Switzerland’s real GDP was 3.2% with exports exceeding imports by $9.6 billion (a trade surplus). The machinery, metals, electronics, and chemicals sectors are known for precision and quality and they account for well over half of Switzerland’s export revenues. The country is approximately 60% self-sufficient, taking only 7.5% of it imports from the U.S. With a low inflation and unemployment rate (1% and 2.5% respectively), Switzerland is positioned to be a powerhouse in the world’s economy. The Swiss economy earns approximately 50% of its corporate earnings from exports, of which, about 70% are destined for the EU market (The World Factbook, 2007).

Switzerland is also one the world’s most prosperous countries in terms of private income. In 2003 the median household income in Switzerland was an estimated $54,000 (U.S.), 26% higher than the 2003 U.S. median income of $43, 000. They also consistently rank high on quality of life indices such as high concentrations of computer and internet usage per capita, high insurance coverage per individual, and high health care rates.

Switzerland is headquarters to the World Health Organization (Geneva) and several major retail, pharmaceutical, banking and food corporations such as Bally Shoe Company (high end designer shoes), Credit Suisse(banking), Roche Holding AG(pharmaceuticals), Nestle’ foods, Rolex(high end watches), Novartis( pharmaceuticals) and one the world’s largest banks, UBS AG with $9.4 billion in revenues(2006), (Top 500 Swiss Companies, 2006). An amazing accomplishment for a country that is slightly less than twice the size of New Jersey.

EU Membership

The Swiss federal government is greatly divided over joining the European Union (EU). In a March 2001 referendum 70% of Swiss voters rejected steps toward EU membership (The World Factbook, 2007). The decision to join the EU will most likely to be on hold for years, perhaps decades. In May 2005, the government signed a quasi agreement with the EU, in lieu of joining the organization. This was done in order to create an atmosphere for open dialogue and favorable cooperation. However, the relationship has become somewhat strained due to Switzerland’s cantonal tax for foreign holdings. The EU threatened trade retaliation if the Swiss cantons do not change their tax policies. So far, the EU has not carried out this threat, but the pending threat caused greater anti-EU feelings among the Swiss (U.S. Department of State, 2007). One major reason Switzerland is reluctant to join the EU is the effect it would have on the Swiss franc. Currently the Swiss franc is one the strongest and most stable in the European economy. If the Swiss join the EU, their trade with other EU countries would increase, however, their economic power would decrease due to the decreasing value of the Euro. For example, if Switzerland joined the EU in 2006 their GDP would decrease from $386.1 billion US to 266.6 billion and $255.5 billion US (PPP) to 176.4billion US(PPP). The median household income would decrease by 69% from $54,000(US) to $37,290 (Exchange Rates, 2006).

Agriculture Protectionism

Switzerland is extremely protective of its agricultural industry. High tariffs and extensive domestic subsidization ensures that the country will remain self sufficient agriculturally. According to the Organization for Economic Cooperation and Development (OECD), Switzerland is subsidizing