IMF commends robust Swiss economy and supports economic policy approach

Bern, 26.09.2016 - The International Monetary Fund (IMF) expects the Swiss economy to continue to recover thanks to its considerable resilience and adaptability. The IMF experts generally recommend pursuing the monetary and fiscal policy approach and advise only selective adjustments. They also support the structural reform that have been initiated. Potential risks continue to stem from international financial markets and developments within Switzerland.

The Swiss economy's resilience following the sharp appreciation of the franc is down to considerable flexibility on the part of firms and the labour market. According to the preliminary findings of the latest IMF consultations, the Swiss economic recovery is likely to gain momentum following the strong appreciation of the franc early 2015, with growth reaching 1.5% this year and 1.75% in the medium term. This is also due to the expansionary monetary policy that has led to a somewhat weaker franc. The IMF believes the downward pressure on prices has also eased. It considers that the franc is still moderately overvalued.

The IMF experts see economic risks in a weaker outlook for foreign trade, a resurgence in financial market volatility, uncertainties regarding EU economic relations related to the implementation of the mass immigration initiative, as well as in property and mortgage markets.

The SNB's monetary policy strategy of using negative interest rates and occasional foreign exchange interventions has proved its worth in the eyes of the IMF, which believes both instruments are effective for countering a sharp appreciation of the franc and thus deflation. The IMF generally supports the Confederation's fiscal policy stance. It noted in this area that expenditures in the financial statements are regularly lower than the amounts budgeted under the debt brake. The IMF wonders whether underspent amounts could be used the following year. The financial surpluses at federal level help reduce Switzerland's public debt. However, it recommends considering having a better alignment of the instruments.

The IMF welcomed the implementation of some reforms to enhance the stability of the financial sector, namely in the areas of bank capital ratios, regulation and the framework for financial market supervision. In its opinion, potential financial sector risks driven by the low interest rate environment must be monitored and reduced if possible. In particular, the IMF recommends continuing to keeping a close eye on the development and concentration of the exposre of financial institutions to the mortgage market and the property sector despite the slight cooling of late.

Finally, the IMF supports important reform projects currently under way in Switzerland. It believes that the adoption of the pension reform is necessary to ensure the financial sustainability of the pension system. Despite the expected reduction in tax receipts, the latest corporate tax reform is also positive, given that clear and predictable tax conditions will be created for all companies in Switzerland while at the same time maintaining international competitiveness.

The IMF delegation conducted this year's country evaluation in Bern and Zurich from 15 to 26 September 2016. The regular evaluation of the economic and financial policies of its member states within the scope of the Article IV Consultation is a core element of the IMF's surveillance mandate.

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Anne C├ęsard, SIF Communications, State Secretariat for International Financial Matters SIF
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