OECD Economic Surveys: Switzerland 2024

1. Ensuring resilient and sustainable growth

Switzerland has been resilient through the COVID-19 crisis, the recent geopolitical turmoil following Russia’s war of aggression against Ukraine and reverberations in energy markets. Economic activity and incomes have held up well and inflation rose less than in most economies (Figure 1.1), underpinned by a well-diversified economy, lower reliance on fossil fuels and robust macroeconomic policies. Yet, the economy is facing uncertain prospects and challenges remain.

Activity and trade have weakened. Past monetary tightening to fight inflation – domestically and internationally – is cooling foreign demand, with an adverse impact on manufacturing activity and investment. High uncertainty around the persistence of core inflation, future volatility of energy prices and geopolitical tensions weigh on economic prospects and make policy more challenging. Rising interest rates globally also heighten risks and vulnerability in the financial system. In early 2023, Credit Suisse – a global systemically important bank – had to be rescued through a state-facilitated takeover by UBS, with ample liquidity assistance, partially backed by a federal default guarantee. This highlights the need for sustained vigilance and continuous revisions to regulation of systemically important financial institutions.

Switzerland is one of the OECD top performers with very high GDP per capita and a strong labour market. Unemployment is low while labour utilisation and job security are high, attracting a highly skilled workforce (Figure 1.1 and Figure 1.2). Going forward, to sustain high standards of living, policy will need to tackle headwinds from population ageing, slowing productivity growth and challenges related to the green and digital transitions.

Figure 1.1. Economic outcomes

1. Indicator reversed so that the right side of the scale corresponds to a better outcome.

Source: OECD National Accounts database; OECD consumer price indices complete database; OECD labour market statistics database; and OECD calculations.

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Fiscal policy is facing hard choices in the medium term. Despite low public debt and a return to fiscal surpluses, pressures are growing. Population ageing raises costs related to pensions, health care and long-term care. Spending needs to tackle climate change are rising. Defence needs and interest rates on public debt are also putting pressures on public spending. To abide by the debt brake rule, Switzerland will either have to undertake structural reform to cut spending or significantly raise public revenues.

Figure 1.2. Inclusiveness indicators

1. Indicator reversed so that the right side of the scale corresponds to a better outcome.

Note: Relative poverty rate is the rate after taxes and transfers with poverty line at 60% median household income. Social mobility indicator is the expected number of generations for the children of a family at the bottom 10% if the income distribution to reach average income. Average PISA score is the average scores of math, science and reading.

Source: OECD income distribution database; OECD (2018), A Broken Social Elevator? How to Promote Social Mobility, OECD Publishing, Paris; OECD PISA database; OECD education at a glance database; OECD Employment Statistics; and OECD calculations.

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Higher labour force participation can bring higher and more equitable growth. Labour and skills shortages are rising and are increasingly becoming a structural issue. Rapid population ageing and a preference shift towards shorter working hours weighs on future economic growth. Yet, some groups, such as mothers and older workers remain underutilised. The interplay between the tax and benefit systems and high costs of childcare result in disincentives to work for second earners, notably mothers. Bringing more mothers to work full time will help reduce the sizable gender income gap. Lengthening working lives will raise incomes in old age and counter pressures in the pension system. Greater employment of skilled foreign workers can counter declines in the domestic labour force and ease labour shortages.

Switzerland, as the rest of the world, faces looming environmental challenges. High levels of consumption driven by the high standard of living result in high levels of emissions and resource use. In addition, Switzerland is warming twice as fast as the global mean due to its Alpine topography. The Swiss economy has successfully decoupled economic growth from emissions and achieved higher energy efficiency (Figure 1.3). Yet, emissions will have to go down at a much faster pace going forward, notably in transport and buildings sectors, if Switzerland is to meet the net-zero target by 2050.

Figure 1.3. Sustainability indicators

1. Indicator reversed so that the right side of the scale corresponds to a better outcome.

Note: GDP per unit of GHG emissions is the production-based CO2 productivity. Fine particles concentration is mean population exposure to PM2.5. Household energy consumption per capita is energy consumption per m² of households for space heating scaled to EU average climate.

Source: OECD green growth indicators database; Odyssee-mure; and OECD calculations.

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A rise in geopolitical tensions and a global shift towards protectionism pose challenges for Switzerland. It is a highly internationalised economy whose success has been underpinned by high openness to trade and cross-border flows of capital and labour (Figure 1.4). Continued access to foreign markets is crucial to maintain competitiveness, productivity and growth, while addressing supply chain vulnerabilities and risks. Moreover, open competition in the domestic market and an improved business environment will further increase the resilience of the Swiss private sector and reinforce Switzerland’s position as a global hub for business, investment and research.

Figure 1.4. A global shift towards more protectionism poses challenges for Switzerland’s open economy

Note: For panel A, the chart denotes the cumulative trade coverage of restrictions on goods estimated by the WTO Secretariat, based on information available in the TMDB on import measures recorded since 2009 and considered to have a trade-restrictive effect. The estimates include import measures for which HS (Harmonised Commodity Description and Coding System) codes were available. The figures do not include trade remedy measures. The import values were sourced by the UN Comtrade database.

Source: WTO November 2022 Report; Economic Outlook database; OECD International Direct Investment Statistics database.

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Against this background, the main messages of this Survey are:

• Monetary policy should remain tight until inflation and inflation expectations remain durably within the 0-2% target band. Continued close monitoring of risks and vulnerabilities in the financial sector and working to improve regulation and supervision of systemically important banks will safeguard financial stability. A broadly neutral fiscal stance is warranted in the short-term, with automatic stabilisers operating freely, to sustain the economy during the slowdown. However, long-term fiscal sustainability pressures call for structural reform to counter rising cost of ageing and tackle climate change and strengthened tax revenues.

• High labour market participation will raise growth and make it more inclusive. Longer working lives and lower barriers for mothers to work full time will help in this regard.

• Environmental policies need to strengthen to achieve sustainable growth. Stronger incentives and speedier approval processes can help accelerate emission reductions, notably in the transportation and building sectors, and facilitate further electrification of the economy.

• Deepening ties with existing trading partners, notably the EU, and extending the network of free trade agreements can bring about more resilient supply chains, while sustaining access to export markets and exposure to valuable competitive pressures. Reduced barriers to cross-border trade and a lower administrative burden within the internal market can spur competition and productivity growth.

Box 1.1. Recent reforms

In the recent past Switzerland has progressed in several reform areas that were previously discussed in OECD Economic Surveys:

Pensions: Two recent reforms (one effective from 2020 and one from 2024) raised slightly revenues to the first pillar pension fund by earmarking increased VAT tax and raising the federal government’s contributions. In addition, the retirement age of women is to be gradually equalised with that of men at 65 (by 2027).

Climate: A Climate Protection Act (effective from 1st January 2025) was passed in September 2022 and confirmed by referendum in June 2023, embedding in national law the net zero target for 2050 and defining the 2030-2050 emission reduction paths (overall and sector-level). The law has also committed additional public support to green heating systems in buildings and investment by companies in green technologies.

Corporate income tax: Switzerland has adopted the OECD-initiated global minimum 15% corporate tax on multinational companies. The implementation of the tax (as a supplementary federal tax) and the distribution among the federal government and cantons was confirmed in a referendum in 2023 and will be effective as of January 1^st, 2024.

Trade: Switzerland unilaterally eliminated import tariffs on all industrial products, effective from January 2024. The removal of tariffs on industrial goods covers a range of consumer goods as well as some raw materials and unfinished products that enter Switzerland for further processing. It does not include agricultural or fishing products.