{
  "title": "Switzerland: Staff Concluding Statement of the 2021 Article IV Mission",
  "publication": "IMF News, April 7, 2021",
  "sourceUrl": "https://www.imf.org/en/news/articles/2021/04/06/mcs040621-switzerland-staff-concluding-statement-of-the-2021-article-iv-mission",
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  "summary": "IMF mission led by Mark Horton conducted virtual discussions during March 17-April 7, 2021.",
  "publishDate": "2021-04-07",
  "sections": [
    {
      "heading": "Mission summary and context",
      "content": "- IMF mission led by Mark Horton conducted virtual discussions during March 17-April 7, 2021.\n- Switzerland navigated the Covid-19 pandemic well due to an early, strong, and sustained public health and economic policy response.\n- Authorities are extending fiscal support to households and firms in 2021 and vaccine roll-out is expected to pick up as supplies increase.\n- Policy priorities identified: ensure a strong and sustained recovery; protect vulnerable groups; mitigate labor market dislocation and scarring; keep viable firms in business; avoid early withdrawal of fiscal support; maintain accommodative monetary policy; closely monitor financial sector risks; continue focus on pension reforms, decarbonization, and climate-change mitigation and adaptation.\n\nKey contact from IMF Communications Department: PRESS OFFICER: Wafa Amr; Phone: +1 202 623-7100; Email: MEDIA@IMF.org."
    },
    {
      "heading": "Economic outlook and risks",
      "content": "- 2020 contraction: the Swiss economy contracted by 2.9 percent.\n- Reasons for milder contraction: strong fiscal, financial, and household buffers; highly-competitive export industries (e.g., pharma, chemicals); large and well-capitalized financial sector; low dependency on contact-intensive sectors (e.g., tourism); well-resourced health system; carefully-targeted containment measures; ongoing adaptation.\n- Emergency measures: authorities quickly put in place emergency measures exceeding 10 percent of GDP targeting support for households and firms.\n- SNB actions and credit conditions:\n  - SNB made sizable foreign exchange (FX) purchases in H1:2020 to counter large safe-haven inflows.\n  - Non-mortgage lending increased last year at the fastest rate in over a decade.\n  - Non-performing loans (NPLs) remained at very low levels.\n- Exchange rate and external sector:\n  - The franc appreciated by 6 percent and 4 percent, in nominal and real effective exchange rate (ER) terms.\n  - External current account surplus was 3.8 percent of GDP versus 6.7 percent in 2019.\n- Growth projections:\n  - Growth should reach 3.5 percent in 2021.\n  - Growth should reach 2.8 percent in 2022.\n- Risks and uncertainty:\n  - Near-term risks dominated by pandemic dynamics, including more contagious or virulent strains and slow or incomplete vaccination.\n  - Scarring likely in sectors where demand may recover more slowly (e.g., hospitality, events).\n  - Potential for rises in unemployment, NPLs, and bankruptcies when support is withdrawn.\n  - External risks: weaker global recovery, tightening global financial conditions, worsening trade frictions, faster deglobalization, and uncertainty in EU market access discussions.\n  - Upside risks: positive spillovers from the large U.S. fiscal package and stronger-than-expected growth in the EU."
    },
    {
      "heading": "Fiscal policy — maintaining adequate fiscal support",
      "content": "- Recommendation: Fiscal policy should remain accommodative until there are signs of sustained recovery.\n- Current measures and stance:\n  - Authorities are rightly extending exceptional support in 2021.\n  - Federal-cantonal “hardship” loans and grants and STWP, income compensation for the self-employed, and extended unemployment insurance expected to continue supporting demand.\n- Guidance on scaling and phasing:\n  - As recovery is secured and risks abate, extraordinary support should be increasingly targeted and scaled back.\n  - Extraordinary support is scheduled to phase out at the end of 2021; if recovery is not secure, support should be extended to avoid cliff effects.\n- Fiscal framework considerations:\n  - The debt-brake rule envisages offsetting extraordinary outlays over six years.\n  - Consideration is being given to a longer amortization period and offsetting Covid-19 spending against past surpluses (recorded in the “compensation account”).\n  - Other possible adjustments: less-conservative revenue forecasts, greater in-year calibration, and spending ceilings with a built-in buffer or margin, multi-year flexibility, or contingent features to limit underspending.\n- Longer-term fiscal priorities:\n  - Continue and enhance targeted support for green and digital growth, with attention to low-income earners.\n  - Consider targeted and efficient outlays for climate mitigation and adaptation, digital transformation, innovation and R&D, and productivity gains.\n  - Stamp duty and withholding tax reforms under consideration would ease tax and compliance burdens and improve capital market functioning."
    },
    {
      "heading": "Monetary policy — accommodative stance and tools",
      "content": "- Recommendation: Monetary policy should remain accommodative in light of risks of an extended period of very low or negative inflation.\n- Tools and contingencies:\n  - Include unconventional policies via unsterilized FX intervention (FXI) in case of substantial safe-haven flows and particularly strong appreciation pressures that would worsen deflation risks.\n  - SNB should continually review its monetary policy framework and tools, considering adjustments or extensions of targets, instruments, and communications based on the Covid-19 experience.\n  - Assess other instruments such as purchase of a wider range of assets for quantitative easing or funding-for-lending programs (following the Covid-19 refinancing facility).\n- Structural considerations:\n  - Review of greater “home bias” of Swiss investors may identify actions to help ease appreciation pressures."
    },
    {
      "heading": "Financial stability — monitoring and prudential measures",
      "content": "- Banking sector position:\n  - Swiss banking sector entered the crisis with strong buffers.\n  - Banks have incurred limited losses so far but benefited from monetary, prudential, and fiscal support (loan guarantees, STWP).\n  - Asset-quality deterioration remains a risk; exposure to contact-intensive sectors is limited.\n- Macroprudential measures:\n  - Deactivation of the countercyclical capital buffer requirements at the outset of the crisis was appropriate and helpful but should remain temporary.\n  - Buffers should be in place for potential real estate market developments.\n- Real estate risks:\n  - Residential property price rises have continued, increasing affordability concerns and risks; monitor especially as income support is withdrawn.\n  - Commercial real estate faces risks given pandemic effects and likely changes in occupancy, rents, and valuations.\n- Data, oversight, and fintech:\n  - New macro-prudential tools may be needed.\n  - More resources needed for high-quality data collection and oversight, including of fintech activities.\n- Bank responses and supervision:\n  - Financial firms have reacted to negative interest rates and low margins by reducing costs and seeking higher returns.\n  - Authorities are monitoring risk controls and buffers and should take early action if needed."
    },
    {
      "heading": "Structural challenges — labor market, pensions, and climate",
      "content": "- Labor market policies:\n  - Policies should remain protective to prevent scarring and inequality.\n  - Crisis-related changes to eligibility, coverage, and duration of STWP support should remain in place, along with extended support for self-employed and unemployment insurance provisions, until sustained recovery is underway.\n  - Support labor mobility: enhanced training, lifelong learning, career guidance, language instruction, and high-quality childcare to retain women in the labor force.\n  - Continue efforts to support apprenticeships; identify and remove disincentives for hiring or retaining older workers.\n  - Recognize that keeping support measures too long may impede necessary post-Covid-19 transformation.\n- Pension system challenges:\n  - Swiss pension system is not well-aligned with demographic and economic trends.\n  - Without decisive reforms, the first pillar will run into sizable funding gaps by 2030.\n  - Low interest rates and an above-market mandatory conversion rate are straining second-pillar pension funds.\n  - Recommended reforms: more ambitious retirement age increase and linkage of the retirement age to life expectancy; reduction of conversion rates should go further.\n  - Improve pension fund investment practices, governance arrangements, and reduce the number of funds to achieve economies of scale.\n- Climate strategy and decarbonization:\n  - An ambitious new climate strategy was approved in January based on the revised CO2 law with guidelines and sectoral targets for decarbonization through 2050.\n  - Revised CO2 law incorporates requirements for vehicle fuel efficiency and fuel importers, standards for new construction, and a phased increase of the CO2 tax on heating fuels.\n  - Investment needs are substantial: energy system, transportation, and especially building renovation.\n  - Strategy needs firming up for agriculture and financial sectors from 2030 and for international aviation and supply chains connected to Swiss imports.\n  - Achieving 2030–50 targets will require carbon capture and negative-emissions technologies that have not yet been developed.\n  - A new Climate Fund, financed through a CO2 levy on heating fuels and new air-travel levies, will help fund decarbonization, mitigation, adaptation, and R&D.\n- Recommended climate actions:\n  - Develop a clear, monitorable emissions action plan to support the climate strategy and address gaps and risks.\n  - Consider further targeted investments and potential acceleration in energy sector, building renovation, transport, R&D, adaptation, and mitigation to meet CO2 targets and retain competitiveness.\n  - Consider transformative investments in agriculture and ensure synergies and high effectiveness and efficiency with ongoing programs."
    },
    {
      "heading": "Concluding note",
      "content": "- The mission thanks the Swiss authorities and other counterparts for the very constructive policy dialogue and productive collaboration.\n\nSource: Switzerland: Staff Concluding Statement of the 2021 Article IV Mission (April 7, 2021), IMF mission led by Mark Horton.\n\n---\n\n\n References\n\n- Switzerland and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2021/04/06/mcs040621-switzerland-staff-concluding-statement-of-the-2021-article-iv-mission"
    }
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    "Published: April 7, 2021",
    "IMF mission led by Mark Horton conducted virtual discussions during March 17-April 7, 2021.",
    "Switzerland navigated the Covid-19 pandemic well due to an early, strong, and sustained public health and economic policy response.",
    "Authorities are extending fiscal support to households and firms in 2021 and vaccine roll-out is expected to pick up as supplies increase.",
    "Policy priorities identified: ensure a strong and sustained recovery; protect vulnerable groups; mitigate labor market dislocation and scarring; keep viable firms in business; avoid early withdrawal of fiscal support; maintain accommodative monetary policy; closely monitor financial sector risks; continue focus on pension reforms, decarbonization, and climate-change mitigation and adaptation.",
    "2020 contraction: the Swiss economy contracted by 2.9 percent.",
    "Reasons for milder contraction: strong fiscal, financial, and household buffers; highly-competitive export industries (e.g., pharma, chemicals); large and well-capitalized financial sector; low dependency on contact-intensive sectors (e.g., tourism); well-resourced health system; carefully-targeted containment measures; ongoing adaptation.",
    "Emergency measures: authorities quickly put in place emergency measures exceeding 10 percent of GDP targeting support for households and firms.",
    "SNB actions and credit conditions:",
    "Exchange rate and external sector:",
    "Growth projections:",
    "Risks and uncertainty:",
    "Recommendation: Fiscal policy should remain accommodative until there are signs of sustained recovery.",
    "Current measures and stance:",
    "Guidance on scaling and phasing:",
    "Fiscal framework considerations:",
    "Longer-term fiscal priorities:",
    "Recommendation: Monetary policy should remain accommodative in light of risks of an extended period of very low or negative inflation.",
    "Tools and contingencies:",
    "Structural considerations:",
    "Banking sector position:",
    "Macroprudential measures:",
    "Real estate risks:",
    "Data, oversight, and fintech:",
    "Bank responses and supervision:",
    "Labor market policies:",
    "Pension system challenges:",
    "Climate strategy and decarbonization:",
    "Recommended climate actions:",
    "The mission thanks the Swiss authorities and other counterparts for the very constructive policy dialogue and productive collaboration.",
    "[Switzerland and the IMF](http://www.imf.org/external/country/CHE/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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