IMF Executive Board Concludes 2022 Article IV Consultation with Switzerland
June 15, 2022
Washington, DC : The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Switzerland on June 10, 2022.
The Swiss economy recovered strongly in 2021 and early 2022, reflecting agile, supportive policies and a global pickup. Growth was 3.7 percent last year, with output 1 percent higher than 2019 and 2 percent below pre-Covid trends. Employment has surpassed pre-crisis levels. The authorities continually adapted Covid-19 mitigation measures; pandemic support remained strong and monetary policy accommodative. Bank profitability and capitalization held up well, buoyed by Covid-19 support to firms and households, sustained lending, and fee income, with NPLs at low levels. Strong exports (watches, instruments, pharmaceuticals) and merchanting contributed to a higher current account surplus. The recovery was uneven, however, notably in Covid-hit sectors (hospitality, transport), and inflation has picked up, albeit less than in other advanced economies.
Growth is expected to slow in 2022—remaining above medium-term potential, but dampened by spillovers from the war in Ukraine. Direct exposures to the war (exports, energy, financial sector, investment) appear limited, but indirect effects—higher energy and commodity prices, supply disruptions, complex financial exposures (commodity trade, wealth management), and lower regional and global growth—could be substantial. Switzerland is hosting over 50,000 refugees from Ukraine. Fiscal and monetary policies remain supportive, and higher household savings during Covid-19 should buoy consumption and growth. The war in Ukraine is also likely to affect activity in 2023 with growth projected at 2¼ percent. Unemployment could rise in 2022 as Covid-19 support is withdrawn, but should remain lower on average than in 2021. Inflation is expected to average 2½ percent this year, before easing to 1.6 percent in 2023.
Risks are tilted to the downside with high uncertainty. The war in Ukraine is a major source of uncertainty (scope, duration). Worsening of the war could lead to sharply higher commodity prices, supply disruptions, and even-lower regional and global growth, with risks to financial markets. Increased volatility could intensify flight to the franc and appreciation pressures. Besides the war and inflation, other risks include adverse Covid‑19 developments, cyberthreats, and residential real-estate imbalances, where a sharp rate rise could trigger price corrections and impacts on households, banks, and activity. Medium-term challenges include population aging and climate change. Lack of clarity on EU relations is a concern.
Executive Board Assessment [2]
Directors welcomed Switzerland´s robust recovery and the authorities’ strong, adaptive response to the Covid-19 pandemic. Directors noted that while the recovery is expected to continue, there are challenges linked to the war in Ukraine and to longer-term issues, such as aging and climate change. They stressed that policies should remain agile in responding to the impacts from the war and to foster a green-digital transformation.
Directors agreed that the current fiscal policy stance was appropriate. They emphasized the importance of maintaining flexibility to respond to adverse developments. Noting that the fiscal framework requires the offsetting of extraordinary spending via future surpluses, Directors agreed that extending the offset period for Covid-19-related extraordinary spending was appropriate, given the magnitude of outlays. They emphasized the need for a medium-term fiscal plan to address rising spending pressures, related to aging, climate transition, energy security, and defense. The plan would also help manage potential revenue losses from tax reforms.
Directors underscored the importance of preparing for monetary policy normalization and noted risks related to higher, more persistent inflation. They encouraged the central bank to remain vigilant, review its tools, and adjust policy settings when needed. Directors recognized that policy-rate changes would be the most effective tool, accompanied by foreign exchange intervention to manage excessive volatility, if necessary, and also agreed that there is scope for nominal appreciation to ease inflation pressures. They emphasized that effective communication would help support a smooth transition from a long period of accommodation.
Directors welcomed the continued banking sector resilience and steps taken to strengthen financial stability, including the reactivation of the countercyclical capital buffer for real estate. Noting rising vulnerabilities related to residential real estate and the war, Directors recommended continued close monitoring of risks and further progress on 2019 FSAP recommendations, including early expansion of the macroprudential toolkit. They emphasized the need to build on recent efforts to further strengthen the AML/CFT framework, enhance fintech regulation and supervision, and promote climate reporting and green finance.
Directors welcomed the authorities’ efforts to advance emissions reduction and energy security and progress on labor market and pension reforms. They encouraged continued efforts to close skills gaps and improve the efficiency and performance of pension funds. Directors expressed support for efforts to establish strong bilateral arrangements with the EU.
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
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Switzerland: Selected Economic Indicators, 2020–23 |
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