Country Report Switzerland

By Jane Vetter

ECO 3701

Spring 2006

Due Date: 4/27/06

Country Report Switzerland Jane Vetter

Switzerland′s economy is very stable and well-known for its monetary security

and banking system. Due to its rather small size and high labor specialization, industry

and trade are economic key factors. Throughout the 20th century, Switzerland maintained

its position as wealthiest country of Europe. The 1990s, however, changed Switzerland′s

economic position due to various reasons. The following section will examine economic

coefficients which are important for international trade, such as exports, imports, and

foreign investment. Besides, the paper will take a closer look at Gross Domestic Product

(GDP) development and other facts which allow us to analyze Switzerland′s economic

well-being. The historic data is based on Rais′ and Stauffer′s overview of Switzerland′s

trade cycle history from 1990 until 2002. Recent trends are compiled of sources coming

from Wikipedia′s Online Encyclopedia, the World Bank, and the OECD.

At the beginning of 1990, Switzerland′s economy was influenced by numerous

international problems such as the Iraqi invasion in Kuwait, exploding oil prices, and a

totally new orientation of Eastern Europe away from socialism towards more democratic

principles. This implicated financial insecurities of various enterprises and led to a slow

stagnation of the global economy. Hence, Switzerland′s GDP fell by 0.8 percent between

1990 and 1991. Due to Germany′s Unification, Switzerland′s neighbor increased its

interest rates in order to cover high inflation which made an impact on Swiss interest

rates as well. Thus, investment decreased by 2.2 percent. Low foreign demand caused a

major contraction of exports of approximately 1.3 percent. Imports went down as well.

Overall, Switzerland had to deal with a massive demand crisis combined with a major

trade surplus. In 1992, Switzerland was affected by stagflation and there was no

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Country Report Switzerland Jane Vetter

improvement in sight. When Italian Lira and British Pounds had to leave the European

Economic Union (EEU), the Swiss Franc became more important and generated big

capital flows towards Switzerland. However, the Swiss economy did not recover. Exports

were the only positive economic factor; increasing by 3.1 percent. In 1993, the global

economy improved, helping Switzerland to further raise their exports. The Bank of

Switzerland pursued restrictive monetary policy, slowing down growth even more since

the higher value of the Franc strained exports. GDP increased by 1.1 percent, mainly

because of a strong positive trend in the building sector. In 1995, GDP increased by weak

0.4 percent. The trade surplus widened as exports stagnated but imports increased. 1996

was similar with minimal growth. However, foreign interest in Swiss products rose,

leading to overall improvement of the economic situation. After reaching a 5.2 percent

peak in 1997, unemployment dropped in 1998 by 1.3 percent. Previous cautious

consumption brightened which supported aggregate demand. GDP reached 2.8 percent,

the highest number since 1990. Due to higher consumption and lower exports,

particularly evoked by the Asian and Russian economic crisis, Switzerland′s trade deficit

finally decreased. Construction investment showed a major drop which decreased GDP

by 1.5 percent down to 1.3 percent. Consumption, however, remained strong. Overall,

Switzerland was able to benefit from global economic rebound. Exports increased by 6.5

percent, primarily borne by chemical products and machinery. Expansionary monetary

policy supported this economic development. The new millennium presented impressing

numbers: all main indicators showed positive outcomes, mainly capital flows from

foreign countries, demand, and investment. Exports and imports showed robust surges,

increasing by 10.2 and 9.5 percent in 2000 alone. Growth was equal to 3.6 percent. In

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