www.oecd.org/eco/surveys/economic-survey-switzerland.htm

OECD

OECD Economics

2015 OECD ECONOMIC SURVEY OF SWITZERLAND

Catherine L. MannOECD Chief EconomistBern, 1 December 2015

2

Switzerland has enjoyed strong and stable growth

Real GDP levels in selected countriesIndex, 2008 Q1 = 100

Source: OECD Economic Outlook 97 database (and updates).

3

The exchange rate is strong

Source: Swiss National Bank.

Exchange rates

Enforced currency ceiling of 1.2 euros to the franc from 6 September 2011 to 15 January 2015

4

Extremely loose monetary policy

1. The SNB implements its monetary policy by fixing a target range for the three-month Swiss franc Libor. The Libor is a reference interest rate in the interbank market for unsecured loans. It is a trimmed mean of the rates charged by 11 leading banks and is published daily by the International Commodities Exchange (ICE).Source: Swiss National Bank, Monthly Statistical Bulletin and Monthly Bulletin of Banking Statistics, April 2015; and OECD Economic Outlook 97 database..

5

Popular initiative limiting immigration to be implemented by 2017

-1.0

-0.5

0.0

0.5

1.0

1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Natural Increase Net migration Population

Migration and natural population growthPer cent growth

Source: OECD Population and Vital Statistics database.

6

Per capita GDP levels are high

Difference in level of per capita real GDP compared to upper half of OECDPercentage points

Compared to the simple average of the 17 OECD countries with highest GDP per capita in 2013 based on 2013 purchasing power parities (PPPs) Source: OECD, Going for Growth 2015.

-80

-60

-40

-20

0

20

40

60

-60

-40

-20

0

20

40

60

HUN

POL

EST

GRC SV

K

PRT

SVN

CZE

ESP ITA

JPN EU

OEC

D

GBR FRA FIN

BEL

CAN

DEU

DNK

SWE

AUT IRL

NLD

USA

CHE

LUX

2 3

7

Labour productivity growth has been around the OECD average

Labour productivity and real GDP per capita growth, 2005-14Average annual percentage change

Source: OECD, Economic Outlook 97 database (and updates); OECD National Accounts database; and SECO.

8

Total Factor Productivity growth has been below par

Average annual TFP growth, 1995-2013Average annual percentage change

Source: OECD Productivity Database.

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

ITA ESP DNK NZL BEL NLD CHE CAN JPN AUT FRA AUS DEU GBR SWE USA FIN IRL KOR

9

Real wages have decoupled from productivity growth

Real wages and labour productivity growth Index, 2008-Q1=100

1. Deflated by Producer Price Index.2. Productivity measured using hours worked.Source: OECD, Economic Outlook 97 database (and updates).

10

Recommendations for improving productivity growth and boosting medium-term growth

Key recommendations

• Increase competition in the telecoms and energy sectors, including privatising Swisscom.

• Push forward with reforms in the agricultural sector.

• Extend the network of free-trade agreements, including with India and the United States.

• Take measures to promote more intensive participation of women in the work force, such as by increasing the supply of childcare facilities and introducing individual as opposed to family taxation.

Other recommendations

• Move to a single VAT rate with as few exemptions as possible.

• Streamline insolvency procedures to facilitate more efficient business adjustment to structural change.

11

The housing sector

12

House prices have increased considerably

1. Nominal house prices divided by per capita nominal disposable income.2. Nominal rent prices divided by per capita nominal disposable income.Source: OECD House Price database.

13

Household debt has increased

Source: OECD Economic Outlook 97 database (and updates) and national sources.

0

50

100

150

200

250

300

350

0

50

100

150

200

250

300

350

SVK

HUN

SVN

POL

CZE

ITA

EST

AUT

DEU

BEL

GRC FR

A

USA

FIN

JPN

ESP

PRT

GBR

KOR

CAN

SWE

AUS

CHE

NOR IRL

NLD

DNK

2000 2007 2013 or latest

Household debt in OECD countries% of disposable income

14

Supply-side responsiveness is low

0.0

0.5

1.0

1.5

2.0

2.5

CHE

NLD

AUT

ITA

BEL

FRA

ISR

GBR DE

UPO

LES

PNO

RAU

SIR

LNZ

LFI

NJP

NCA

NDN

KSW

EUS

A

A. Price elasticity of new housing supply¹

CHENLD

AUTITABEL

FRAGBR

DEU

POLESP NORAUSIRLNZL

FIN JPNCAN DNK

SWE

USA

ISR

0.0

0.5

1.0

1.5

2.0

2.5

0 50 100 150 200 250Number of days to obtain a building permit ²

Supply responsiveness ¹

B. Price elasticity of supply and land-use regulations

Housing supply responsiveness in selected countries

1. Estimates of the long-run price elasticity of new housing supply where new supply is measured by residential investment (see Caldera Sánchez and Johansson (2011)).2. The number of days to obtain a building permit is obtained from the World Bank Doing Business (2009) indicators.Source: Caldera Sánchez, A. and Å. Johansson (2013), “The price responsiveness of housing supply in OECD countries”, Journal of Housing Economics, Volume 22, Issue 3, September, pp. 231-49.

15

Exposure to housing sector is high

1.Or latest available observation. 2014 annual average for Switzerland.Source: IMF, Financial Soundness Indicators (FSI); OECD Economic Outlook 97 database (and updates); and OECD calculations.

Stock of residential loans relative to total bank loans and GDP

0

5

10

15

20

25

30

35

40

45

50

NOR

CHE

SWE

DNK

ESP

NLD

DEU ITA

BEL

2009 2010 2011 2012 2013 2014

A. Stock of mortgages to total bank loans (%)

0

20

40

60

80

100

120

140

MEX TUR

USA

POL

KOR ITA

ISR

DEU

AUT

GRC FI

NLU

XIR

LES

PSV

KBE

LCA

NNL

DG

BR PRT

SWE

NOR

DNK

AUS

CHE

B. Stock of mortgages to GDP, 2015-Q2¹ (%)

Macro-prudential policies aimed at curtailing the housing boom

16

July2012

10% equity excluding 2nd pillar

Amortise to LTV 2/3s within 20 years

Legal framework for CCB

August2012

SNB abstained from activating CCB

January2013

10% equity excluding 2nd pillar

February2013

CCB activated at 1%

January2014

CCB increased to 2%

September2014

Amortise to LTV of 2/3s in 15 years

October2011

Revision of SBA guidelines – affordability,

valuation standards, etc. 2nd Revision of SBA

guidelines – second incomes and

valuation principles.

Common Bank Internal PoliciesLTV ratio of 80%; Interest to Income of 1/3; Reference interest rate of 5% + 1% + 1%.

17

Housing policy and related recommendations

• Establish a framework for explicitly addressing affordability risk, to be used if needed to contain financial stability risks related to imbalances in the housing and mortgage markets.

• Monitor closely mortgage lending to firms or households for rental properties, which may not be as responsive as the owner-occupied segment to recent regulatory measures.

• Review spatial planning regulations to make it easier to build denser housing.

• Harmonise cantonal and communal land-use and building codes to promote greater competition and economies of scale in the construction industry.

• Impose an extra tax on land in high-demand areas that has been rezoned for real estate but has remained undeveloped for more than five years.

• Limit the tax deductibility of mortgage interest so that, combined with maintenance outlays, it does not exceed the amount of declared imputed rent. Update the imputed rent calculations more frequently to better reflect market values.

18

The efficiency of public spending

19

The size of government is small

Government spending and employment

Source: OECD, Economic Outlook No. 97 database (and updates).

20

But early childhood enrolment rates are low

Enrolment rates in early childhood and primary education at the age of three

Source : OECD, Education at a Glance 2014 database.

21

Health expenditure projections

Decomposition of health expenditure developments and projections 2000 = 100, per cent of GDP

Source: Federal Statistical Office (BFS); and Federal Health Office (BAG), KOF.

22

Pension expenditure is set to balloon

Public finance projections Debt-to-GDP ratio, baseline scenario

Source: Swiss Federal Department of Finance, 2012 Report on the Long-Term Sustainability of Public Finances in Switzerland, Bern.

0

20

40

60

80

100

120

140

2009 2012 2015 2018 2021 2024 2027 2030 2033 2036 2039 2042 2045 2048 2051 2054 2057 2060

Confederation Social security Cantons Communes

23

Recommendations to improve public spending efficiency

• Increase public spending on early childhood education and care, especially for children with disadvantaged socio-economic backgrounds (including those from immigrant backgrounds), which could be combined with a generalisation of the childcare voucher systems in the Canton of Lucerne.

• Boost the supply and attractiveness of fields of study that are in high demand in the labour market. Further clarify study streams across the tertiary education system.

• Switch the system for setting generic drug prices to reimbursing a pre-determined fixed amount.

• Encourage systematic benchmarking of hospital costs. If rates keep rising despite the recent reforms, consider new legislation to control them using cost benchmarks.

• Fix the retirement age at 65 for both sexes and thereafter link it to life expectancy. To cut early retirement, reduce existing incentives and pay a larger pension premium for those who choose to work longer.

24

More Information…

www.oecd.org/eco/surveys/economic-survey-switzerland.htm

OECD

OECD Economics

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