Switzerland

The economy has adjusted to the large cumulative exchange rate appreciation that took place since the global financial crisis. Growth is expected to reach 2¼ percent this year and to stabilize around 1¾ percent over the medium term. A resurgence of capital inflows, abrupt policy tightening by major central banks, sharp adjustment in property prices and changes to long-term Swiss-EU relations pose two-sided risks to the outlook. The two-pronged approach to monetary policy has supported the return of modest inflation and the recovery of growth. A series of macroprudential measures was introduced targeting systemic risk in the real estate market, although prices remain high relative to household income. The fiscal position has remained strong with sustained small surpluses and declining public debt. Population aging and slower immigration will create funding gaps in the public pension system. Initiatives leading to abrupt institutional changes could undermine public confidence, and further delays in meeting international standards on corporate income taxation (CIT) could reduce Switzerland’s appeal as an investment destination.