Switzerland WT/TPR/S/13
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I. THE ECONOMIC ENVIRONMENT
(1) Introduction
1. Theeconomic condition ofSwitzerland haschanged significantly since thefirstTrade Policy
Review in1991. After eightyears ofsteady economic growth from1982to1990, Switzerland entered
in1991 themostprolonged economic recession ofthepost-war period. Although growth resumed in
1993-94, theeconomy isstillfaltering; zerogrowth isnowexpected in1996. Unemployment, although
lowcompared tootherEuropean countries, isatalevelnotimagined inearlier years, andpublic deficits,
including those ofsome public enterprises suchastheFederal Railways, areunacceptably highby
Swissstandards.Therecessionmayhavebeencompoundedbytheeconomic,politicalandpsychological
effects ofthe"No" voteontheEuropean Economic AreainDecember 1992. Thecontinuing strength
oftheSwiss franc, appreciating innominal andrealterms, hasrevealed, andexacerbated, structural
problems oftheSwiss economy, withthestrength ofthefinancial sector andthechemicals industry
contrasting markedly withtraditional areasofmanufacturing andtourism. Trade ingoods -particularly
ontheimport side-hasbecome further concentrated inEurope, although Swiss exports toAsiahave
increased theirshare ofthetotal.
(2) TheRecession andSubsequent Recovery
(i) Composition andgrowth ofGDP andemployment
2. Between 1989 and1994, thecomposition ofSwitzerland 'sGDP andofemployment moved
further towards services andaway from agriculture (Table I.1). With agrowing population, largely
duetopermanent settlement ofimmigrant workers, nominal GDPpercapita inSwiss franc terms was
slightly lower in1994 thanin1989 (although, reflecting currency movements, theU.S.dollar figure
forGDP percapita was16percenthigher).
Table I.1
Major features oftheSwiss economy, 1989 and1994
1989 1994
Population (million) 6.7 7.1
GNP percapita (SwF) 31,535 30,682
(US$) 19,277 22,433
Share ofGDP/employment (%)
Agriculture GDP 3.0a2.7b
Employment 5.6 3.8
IndustryaGDP 33.6a29.6b
Employment 35.1 31.8b
Services GDP 63.4a67.7b
Employment 59.3a67.3b
Trade ingoods andservices (%share ofGNP) 85.5 90.5
... Notavailable.
a Including construction.
Source: Office fédéral delastatistique (1994a and1996).WT/TPR/S/13
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3. TheSwiss economy entered aneconomic downturn inearly1991. RealGNPdeclined ineach
ofthethreeyears 1991-1993 (Table I.2).1From mid-1993, growth resumed hesitantly, atanannualized
rateof0.7percentinthesecond halfyearand1.2percentin1994. Since late1994, therateofincrease
ofrealGDPhasagain slowed; growth fortheyear1995isestimated at0.7percent.2Theauthorities
haveattributed thesluggishness oftherecovery toacombination ofcurrency revaluation; theincome
effects ofmodest wage risesandincreased social security contributions; import pressure andstiffening
export competition; andarestrictive effect offiscal policy. Recent projections bytheCommission
pourlesquestions conjoncturelles suggest nogrowth in1996.
4. Asduring the1980s, expansion in1994 waslargely fuelled byprivate investment in
machineryand equipment (Table I.2). Fixed capital formation roseinrealterms bynearly 6percent
during theyear, withpurchases ofmachinery andequipment increasing by11percent.3Thelatter
investments peaked inthefirstquarter of1995 andhavesince fallen sharply, although thelevelwas
stillwellabove thatoftheprevious year. OECD alsoreports ahighlevelofstockbuilding in1994.
Table I.2
Economic developments, 1989-95
1989 1990 1991 1992 1993 1994 1995
Average annual percentage change
RealGDP growth 3.9 2.3 0.0 -0.3 -0.8 1.2 0.7a
RealGNP growth 2.6 2.5 -0.1 -0.7 -0.5 0.7 ...
Consumption
-Public 4.1 4.7 1.5 -0.1 -1.2 0.8 ...
-Private 2.2 1.5 1.5 -0.2 -0.6 1.0 ...
Investment 7.8 2.8 -5.1 -11.0 -5.0 12.1 ...
Fixed investment 5.8 2.6 -2.5 -5.0 -2.5 5.9 ...
-Construction 6.9 1.9 -3.1 -2.3 -1.8 3.2 -3.1
-Machinery andequipment 3.9 3.7 -1.2 -9.6 -3.7 11.0 13.1
Unemployment ('000)b17.5 18.1 39.2 92.3 163.1 171.0 153.3
-As%oflabour force 0.6 0.5 1.1 2.5 4.5 4.7 4.2
Price developments Index: May1993=100
-Producer prices 97.7 99.1 99.6 99.7 99.9 99.6 ...
-imports 105.0 104.1 101.9 100.2 99.8 99.8 ...
-domestic goods 95.3 97.5 98.8 99.5 99.9 99.5 ...
-Consumer prices 83.3 87.8 93.0 96.7 99.9 100.8 102.8a
-imports 89.9 93.9 96.9 98.0 100.2 99.7 ...
-domestic goods 81.2 85.8 91.7 96.3 99.8 101.1 ...
-services 78.5 83.3 90.0 95.8 100.2 101.6 ...
... Notavailable.
a Three firstquarters.
b Total andpartial unemployment.
Source: International Monetary Fund; Banque nationale suisse (various issues); andOffice fédéral delastatistique, Annuaire statistique
delaSuisse (1996).
1OECD (1995a).
2Monnaie etconjoncture, Bulletin trimestriel n1,March 1996, (Banque nationale suisse) .
3Orders forSwiss-produced machinery andimports ofmachinery grew rapidly during 1994; however, in
1995theshareofimportsin(thedeclining)totalofinvestmentpurchasingincreased.(Commissionpourlesquestions
conjoncturelles ,1995, Table 4).Switzerland WT/TPR/S/13
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5. Consumption stagnated throughout thefirsthalfofthe1990s. Thecontribution ofprivate and
public consumption toGDPwasnegative in1992and1993, although recovering in19944;Swiss data
show increases ofonly1percentinhousehold and0.8percentingovernment consumption in1994,
withquarterly figures forhousehold consumption declining inthesecond halfof1994 (with asmall
recovery in1995) andgovernment consumption declining between mid-1994 andmid-1995. TheSwiss
authorities confirm thatthrough 1995, orders inconstruction andindustry continued todecline and
theclimate ofconsumption remained "morose".5
6. Employment hasfallen markedly. Theshare ofthelabour force employed hasdeclined to
some 95percent, withthelabour force itself contracting.6Registered unemployment (seasonally
adjusted) peaked at5.2percentinearly1994andfellverygradually tosome 4.2percentatend-1995.7
TherehavebeenmarkeddifferencesbetweenunemploymentfiguresinthevariousregionsofSwitzerland,
withtheaverage rateinFrench- andItalian-speaking cantons more thandouble thatintheGerman-
speaking areainmid-1995, although theincrease inthenumber ofunemployed inGerman-speaking
regions hasbeenmuch greater. Improved residence rights forforeigners, duetoincreased length of
stayare,tosome extent, reflected intheirhigher share inunemployment attheunskilled levelcompared
toSwiss citizens.
(ii) Prices
7. Price developments during theperiod havebeenaffected bytherecession, price pressures in
non-tradeable goods andservices, andthecontinuing appreciation oftheSwiss franc. Therateof
increase oftheconsumer priceindex (CPI) fellfrom5.9percentin1991tobelow 1percentin1994,
increasing to1.8percentin1995; thelatter increase islargely duetoprices ofdomestic goods and
services.8Producer prices havealsobeenheavily affected bydifferences between prices ofSwiss and
imported goods andservices; thecheapening ofimported inputs hashelped toeasetheeffects ofthe
strong franc onSwiss industry.9Nevertheless, inthelightoflowinflation intherestofEurope and
other developed markets, andtherelative devaluation ofmany partner currencies, itissurprising that
price indices forimported goods havenotyetshown greater declines (seealsoChapter III(1)).
4OECD (1995a).
5Commission pour lesquestions conjoncturelles (1995).
6OECD (1995a) notes thatthelabour participation ratefellin1994 byabout 0.75 percentto67.1 percent,
partlybecauseofhigherparticipationineducationandtrainingandpartlybecauseofderegistrationbyunemployed
people reaching theendoftheirStatebenefits. Boththeforeign labour force andunemployment among foreigners
have grown more rapidly thanforSwiss nationals.
7Swiss National Bank, Monthly Bulletin.
8Monnaie etconjoncture ,March 1996, andCommission pourlesquestions conjoncturelles (1995), Table 11.
According totheauthorities, theintroduction ofVAT contributed about 1percenttoinflation in1995.
9In1993 and1994, forexample, theprice index forenergy fellby9and10.4 percent(Commission pour
lesquestions conjoncturelles ,1995, Table 9).OECD alsonotes thatprices ofimported investment goods fell
by7percentin1994 andeven further inthefirstfourmonths of1995 (OECD, 1995a, page 5).WT/TPR/S/13
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(iii) Exchange ratedevelopments
8. Therecession wasinitially associated withatemporary weakening oftherealeffective exchange
rateoftheSwiss franc in1992 and1993. However, withtherecovery in1994, there wasamarked
appreciation, which continued through 1995, representing anoverall riseintherealeffective exchange
rateof20percentoverthe1980s (Chart I.1).Theappreciation ofthefrancmaybeascribed tovarious
factors, including acontinuation oftightmonetary policy bytheSwiss National Bank10combined with
relativelylessrecessionaryconditionsinSwitzerlandthaninsomeotherOECD(especiallyEU)countries
and,inparticular, massive currency inflows inexpectation, interalia,offurther appreciation and
Switzerland 'scontinuing rôleasasafehaven.
9. Theeffects ofthecurrency appreciation onSwiss tradeingoods andservices areverydisparate.
Forthemanufacturing sector, input prices havefallen (asnoted above), andtheterms oftrade have
improved. Therelatively lowprice elasticity ofcoreSwiss manufactured exports, aided byahigh
degree ofspecialization, market segmentation andidentification ofniches, appears tobeeasing the
effects onthevolume ofexports (Table IV.1). Theprocess ofstructural change towards high-technology
10OECD (1995a) argues thatmonetary easing initiated in1990 stalled inthefirsthalfof1992 when interest
ratedifferentials between theSwiss franc andtheGerman mark became seriously negative. Theappreciation
inrealeffective terms oftheSwiss exchange rateisargued tohave offset subsequent monetary easing bythe
BNS toagreat extent. TheSwiss franc being outside Euromonetary developments, wasrelatively unaffected
bythecurrency turmoils ofspring 1995 andmaintained itsappreciation.Switzerland WT/TPR/S/13
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goods mayhaveaccelerated intheinvestment boom of1994.11Financial services havebenefited as
capital inflows haveincreased (seeBOPdata); ontheother hand, thetourist industry hasveryclearly
suffered.
(iv) Thebalance ofpayments
10. Switzerland 'scurrent account hasshown agrowing surplus since 1989 innominal terms and
asashare ofGDP, peaking in1993 (Table I.3). Themain contributors tothesurplus, apart from
trade ingoods, were non-factor services andreturns oncapital invested abroad. Thecounterpart is
shown inthecapital account, where allitems except those forbanking show outflows, particularly
in1993-94.
Table I.3
Balance ofpayments, 1989-95
(SwFbillion)
1989-90
(average)1991 1992 1993 1994 1995
Merchandise trade balance -11.0 -8.5 -1.4 2.4 2.2 0.2
Non-factor services balance 13.1 14.7 15.1 16.9 16 15.6
-Tourism 1.9 2.8 2.8 2.4 2.5 2.1
Factor services balance 12.7 12.7 11.7 13.5 11.7 12.6
-Capital 19.1 20.3 19.2 20.7 18.5 19.5
-Labour -6.4 -7.6 -7.5 -7.2 -6.9 -6.9
Netunrequited transfers -3.0 -3.7 -4.2 -4.2 -4.8 -4.9
Current account balance 11.7 15.2 21.2 28.7 25.1 23.5
(percentofGDP) 3.9 4.6 6.3 8.4 7.1 6.6
Capital account balance -14.5 -17.1 -22.8 -30.5 -22.4 ...
-FDI -5.9 -5.6 -7.4 -13.1 -10.4 ...
-Portfolio -3.3 -17.2 -8.6 -26.4 -21.8 ...
-Banking -3.9 8.0 -8.7 14.1 14.9 ...
-Enterprises andother -1.5 -2.3 1.9 -5.1 -5.2 ...
Changes/revaluation ofNational
Bank Reserves (-=increase)-2.1 -1.4 -6.2 -0.6 -1.4 0.2
Errors andomissions 4.8 3.3 7.8 2.5 -1.3 ...
... Notavailable.
Note: 1994 dataareprovisional; 1995 dataarefirstestimates.
Source: Banque nationale suisse (March 1996).
(v) Developments intrade ingoods
11. TheU.S.dollar value ofSwiss exports (including gems, precious metals, works ofartand
antiques) peaked in1990atUS$63.7 billion (Table I.4).During therecession of1991-93, totalexports
11However, OECD noted thattherapid increase ofexports in1994 "was accomplished attheexpense of
price concessions made byexporters...profit margins ofexporters areestimated tohave shrunk in1994 forthe
fifthyearinarow" (OECD, 1995a).WT/TPR/S/13
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fluctuated between US$61.5 and65.6billion, while 1994 sawasharp upswing inthedollar value of
exports toUS$70.2 billion. According toSwiss data, thevolume ofexports grew by4.9percent
inthatyear, withrawmaterials andsemi-finished goods showing thegreatest increase (9.4percent).
Areduction of0.7percentinaverage export values and3percentinthe"raw andsemifinished"
category would appear toconfirm thehypothesis, mentioned above, ofprice cutting byexporters.
Price reductions havecontinued into1995; while thevolume ofexports hascontinued toincrease
atapproximately thesame paceasin1994, theSwiss franc value growth hasslowed.12
Table I.4
Merchandise trade developments, 1989-95
1989 1990 1991 1992 1993 1994 1995
Exports
-volume (%change) 5.2 4.5 -1.4 4.3 0.6 4.9 4.2
-value (SwFbillion)a76.7 80.9 82.0 86.1 86.7 90.2 92.0
-value (US$ billion)a46.9 58.2 57.2 61.3 58.6 66.0 77.8
-value (US$ billion)b51.4 63.7 61.5 65.6 63.0 70.2 81.4
Imports
-volume (%change) 5.4 3.2 -1.8 -4.1 -1.3 9.4 6.5
-value (SwFbillion)a88.2 89.8 88.7 86.7 83.8 87.3 90.8
-value (US$ billion)a53.9 64.7 61.8 61.7 56.7 63.8 76.8
-value (US$ billion)b58.2 69.4 66.3 65.6 60.6 67.7 80.0
Balance
-value (SwFbillion)a-11.5 -9.0 -6.7 -0.6 2.9 2.9 1.2
-value (US$ billion)a-7.0 -6.5 -4.6 -0.4 2.0 2.1 1.0
-value (US$ billion)b-6.7 -5.7 -4.8 0.0 2.3 2.5 1.5
Average annual percentage change
Terms oftrade -1.2 1.6 1.1 -0.8 2.2 4.2 -0.5
... Notavailable.
a Excluding precious metals, gemstones, works ofartandantiques.
b Including precious metals, gemstones, works ofartandantiques.
Note: Exports andimports volume data, andterms oftrade for1995 areanaverage ofthefirstthree quarters.
Source: Banque nationale suisse, Bulletin mensuel (février 1996); International Monetary Fund, International Financial Statistics
(February 1996); Commission pourlesquestions conjonturelles (1995); andUNSTAT, Comtrade database.
12. Thevalue ofSwiss imports declined bothinnominal andrealterms through thethree years
oftherecession (OECD). Theinvestment boom of1994, together withasurge inimported inputs
(noted above) ledtoanoverall increase of9.4percentinthevolume ofimports in1994; evenconsumer
goods increased involume byover6percent. Onaquarterly basis, however, there wasamarked
slowing ofconsumer andintermediate goods imports afterthefirstquarter, andofcapital goods after
thesecond quarter of1995, confirming therenewed economic slowdown andthecessation of
stockbuilding. InSwiss franc terms, allcategories ofimports continue todecline inprice; afall
particularly noticeable forenergy products.13Switzerland 'smerchandise tradeshowed steadily falling
deficits until1992andwasinsurplus in1993-95, withtheterms oftradeimproving from1993onwards.
12Commission pour lesquestions conjoncturelles (1995), Table 5.
13Commission pour lesquestions conjoncturelles (1995), Table 6.Switzerland WT/TPR/S/13
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13. Theproductstructureofexportsremainsconcentrated(ChartI.2).Sixbroadgroups-machinery,
electrical andnon-electrical; medicinal products; "miscellaneous manufactures"; precision instruments,
watches andclocks; andchemicals, dyesandperfumes, accounted for70percentofthevalue ofexports
in1994, upfrom68percentin1989. Within thesemaingroups, theshare ofnon-electrical machinery
hasfallen quitenoticeably while those ofmedicinal products, chemicals, dyesandperfumes, electrical
machinery, andevenwatches andclocks haveincreased. Tosome degree, thefallinmachinery sales
isseenasreflecting thedownturn inEuropean andNorth American markets, together with, possibly,
theincreased costinforeign currencies ofheavy mechanical equipment fromSwitzerland; theincreases
confirm thegrowth inthespecialized, high-technology products which increasingly reflect Swiss
comparative advantage.14
14. Thedirection ofexports (Chart I.3)hasmoved infavour ofAsia, particularly EastAsia, over
theperiod. While theshares oftheEuropean Union (whether defined asEU12 orEU15) andofAmerica
asawhole, haveremained stable, thatofAsiahasincreased from12to14.5percent,withASEAN
markets, China andChinese Taipei allincreasing theirshares while thatofJapan hasdeclined.
15. Incontrast totheproduct concentration ofexports, Swiss imports are,asmight beexpected,
extremely diverse. Machinery andtransport equipment remain thelargest categories. Main share
increases in1990-1994 wereinelectrical machinery, clothing, dyestuffs andperfumes (inputs), and
fruitandvegetables. Thesources ofimports are,however, extremely concentrated, withtheEU15
accounting for80percentofthevalue ofimports in1994, upfrom77percentin1990; within the
EU,Germany andFrance arethemain sources.
14LeMois,May1995, notes thatinterms ofturnover forSwiss firms, thewatchmaking industry (40percent
ofwhose exports, which inturnrepresent 95percentofitsoutput, gotodollar markets) would suffer more
thantheheavy engineering industry, whose output ismore directed towards European markets.WT/TPR/S/13
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