Inflation is low, but consistent with the central bank’s target of between 0% and 2%. Monetary policy is expansionary and still-negative rates add to financial stability risks. The first increase in the policy rate, from ‑0.75%, is expected in late 2020. A proposal by the authorities that is currently under public consultation aims to increase the risk weights for investment property loans with high loan‑to‑value ratios. Banks are also considering whether to tighten self-regulation, using loan-to-value ratios. To reduce financial stability risks, a proper framework setting lending limits should be enforced on a comply-or-explain basis.
The government’s fiscal stance is set to become expansionary in 2020, lowering the surplus, as monetary policy starts to normalise. Tax revenues will decline, reflecting a corporate tax reform with lower cantonal tax rates. A personal income tax reduction, planned for 2021, would lower work disincentives for second earners. Accompanying these reforms with higher value-added tax, as proposed, and increasing environmentally related taxes would improve the efficiency of taxation and reduce environmental damage. Boosting public investment from its relatively low levels could help meet long-term challenges, notably population ageing and climate change.
Skills shortages are growing, especially in technical, scientific and information technology occupations. Job vacancies continue to rise, while immigration – a long-standing source of skilled workers in Switzerland – is slowing and population ageing is starting to bite. In the medium term, shortages could be alleviated by encouraging more women to study science, technology, engineering and mathematics. Allowing more non‑EU immigration would also help in the shorter run.
