Think Switzerland – and usually, chocolate, cheese, watches, mountains and … expensive, comes to mind! But compared to other countries in Europe (as well as around the Globe), the rate of inflation in Switzerland – measured over a longer period of time, is surprisingly low and stable.
In the UK in the 1960’s the average price for a pint of beer was 8 pence compared to £3.95 today. Of more significance perhaps, (even for the English) – the average house price was £2’530 during the same period. Taking inflation into account, this means house prices in England have gone up more than 12’000% since 1960.
In Switzerland from 1960 to 2021, the average inflation rate was 2.4% per year. Overall, the total price increase was 319.40%. So, an item that cost CHF100 in 1960 ended up costing CHF419.40 francs at the beginning of 2022. And with inflation in Switzerland running at 3.0% for November 2022 compared to the EU average – expected to be 10% for the same period (slightly down from 10.6% in October) – the question that comes to mind is: what is the real day-to-day economic situation like in Switzerland for the people who live there? In this short bulletin, we touch on some of the economic news hitting the headlines now in Switzerland.
- With a relatively low rate of inflation in Switzerland compared to almost everywhere else, Swiss public workers are set to get a pay rise of 2.5% this year. It is interesting to note, that even before the proposed rise, the average pay for public sector workers in Switzerland was recorded as being 26% above the private sector average!
- Giving worker’s with state jobs more money is one thing, but what about unemployment and associated payments I hear you say? Well it seems like good news on this front too! The Swiss Unemployment solidarity premium charged at 1% for annual salaries above CHF148’200 is due to fall to zero from 01 Jan 2023. This extra premium was introduced over a decade ago, to pay down the deficit in the federal unemployment fund. This has now been accomplished.
- The unemployment rate in Switzerland has averaged around 4-5% during the last few years, affected by the recent global pandemic. However, the long term unemployment rate in Switzerland (unemployed for 12 months or more) averaged 1.65 percent from 2009 until 2022 reaching an all time high of 2.10 percent in the second quarter of 2021 and a record low of 1.20 percent in the second quarter of 2009.
- House prices are beginning to stagnate as interest rates rise, but with the majority of people in Switzerland renting their living accommodation – Swiss rents are of more importance. To note is that Swiss rents are highly regulated and rise and fall with the reference mortgage rate.
- Since this is based on a previous period it remains at 1.25% even though interest rates have begun to rise.
- Earlier this year the Swiss National Bank (SNB) deposit rate turned positive for the first time in several years meaning banks no longer have to pay for the negative interest on the deposits they make with the SNB.
- However, the reference mortgage rate is expected to rise to 1.5% from March next year. This will result in many rents increasing which is bad news for many in Switzerland.
So, although not a disaster, it is not all good news coming out of Switzerland at the moment. And with some Swiss financial analysts remaining pessimistic about the trend in economic growth both globally, as well as in Switzerland – time alone will tell what 2023 holds in store. One thing that the financial analysts surveyed in a recent report could agree on, is that as far as the EUR/CHF exchange rate is concerned, they do not expect the Euro to climb back above parity on a sustained basis over the next few months – so chocolates, cheese and watches will remain expensive for visitors to Switzerland as the Swiss franc remains strong.
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