Statement by the IMF Staff Representative May 9, 2001

Switzerland has had a mixed macroeconomic performance over the past quarter century. After stagnating in the 1990s, the Swiss economy has finally shown some spark. Registered unemployment has declined sharply during the upswing and was below 2 percent in early 2001 amidst reports of increasing shortages of skilled labor. The surge in oil prices pushed headline inflation slightly above 1½ percent in 2000, up from 0.8 percent in 1999. The country’s longstanding current account surplus reached almost 13 percent of gross domestic product in 2000.

Abstract

Switzerland has had a mixed macroeconomic performance over the past quarter century. After stagnating in the 1990s, the Swiss economy has finally shown some spark. Registered unemployment has declined sharply during the upswing and was below 2 percent in early 2001 amidst reports of increasing shortages of skilled labor. The surge in oil prices pushed headline inflation slightly above 1½ percent in 2000, up from 0.8 percent in 1999. The country’s longstanding current account surplus reached almost 13 percent of gross domestic product in 2000.

This statement provides information on macroeconomic and fiscal developments that has become available since the issuance of the staff report (SM/01/110, 4/17/01). This information does not alter the thrust of the staff appraisal.

Recent indicators continue to point to a slowdown in growth: the composite leading economic indicator declined for the twelfth consecutive month in March 2001 and the Purchasing Managers Index fell below 50 percent in April. Against this background, the Swiss National Bank trimmed its growth forecast for 2001 from 2.2 percent to 2.0 percent, the same as the staff’s projection. Inflation remains subdued with core inflation stable at 1.2 percent. After temporarily dropping to 1 percent in the first quarter, headline inflation inched up to 1.2 percent in April due to higher oil prices. Unemployment in April was at a 10-year low of 1.7 percent.

A supplementary budget spending request, submitted to parliament in April, would raise the federal deficit by 0.2 percent of GDP. The main spending items are: the conversion of an earlier deficit guarantee to Expo.2002 into a loan; a transfer to the Pension Fund of Public Employees (PKB) to cover an unexpected deficit due to poor performance of its portfolio; and higher military expenditure. With unchanged revenue, the federal deficit would widen to 0.4 percent of GDP in 2001, however it would remain within the ceiling allowed under the current balanced budget law. The staff would not see the somewhat higher deficit as a concern from a cyclical point of view.

Switzerland: 2001 Article IV Consultation — Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Authorities of Switzerland
Author: International Monetary Fund