The average inflation rate for the European Union in June 2023 stood at 6.4%. This compared to 9.80% last year. The highest inflation rates in the EU were recorded in Hungary at 19%, Serbia at 13.5% and the Czech Republic at 11.2 %. In addition to inflation, there are several other economic indicators that point to growth in Switzerland starting to recover ahead of stagnant or slower economies in other countries, especially within the EU.
In comparison to the above, the annual inflation rate in Switzerland was unchanged at 1.6% in August 2023, remaining at its lowest since January 2022, but slightly above market forecasts of 1.5%.
Real gross domestic product (GDP) growth rates in Europe show a positive picture for Switzerland with forecasts for 2023 at around 0.8% for Switzerland growing to 1.8% by 2026. This is in line to the rest of the EU average GDP growth rate which also stands at 0.8% for 2023. What is interesting to note however, is that the larger neighbouring economies of Germany (-0.1%), France (0.7%) and Italy (0.7%) are all less than Switzerland.
So why does a small land-locked country like Switzerland, have such a resilient economy? Is this down to expert economic planning, or is it purely down to luck? In this post we take a look at some of the major influences behind what makes Switzerland’s economy so resilient and stable.
Stability
- Switzerland has one of the most advanced, developed and mixed economies in the world. This combined with political and economic stability plays a significant role in creating a stable economic climate.
- The Swiss franc is backed by large reserves of gold, bonds and other financial assets, all of which help the Swiss National Bank to ensure the Swiss franc’s stability during times of volatility. For example, while many other currencies plunged against an appreciating US Dollar in 2022, the Swiss franc held steady, despite volatility around Europe.
- The stability of the Swiss economy is achieved traditionally through low inflation, low long-term capital costs, a good investment climate, sound public finances and almost no labour strikes. In fact Switzerland is ranked last in Europe for countries having labour strikes.
Energy Supply
Another reason for stability and the low inflation rate is because Switzerland home to more than 1’500 lakes and a mountainous topography making it less reliant on oil and gas imports than some of its European neighbours, with hydroelectricity playing an important role in its energy supply. Last year round 80% of all electricity flowing in Switzerland originated from renewable energy sources. Energy suppliers are also publicly owned meaning they are less exposed to extreme market volatility with strict pricing regulation.
Exports & Trade Balance
- In 2021, Switzerland exported a total of US$371 billion of goods and services, making it the number 17 exporter in the world. And during the last five recorded years, Switzerland’s exports have grown by US$67.3 billion to US$371 billion in 2021.
- Switzerland’s top five exports are: machinery and equipment, chemical-pharmaceutical products, watches, and textiles and apparel. However, other more hi-tech areas such as robotics are also now playing a major role in Switzerland’s exports.
- In terms of trade with the EU, the latest figures from Eurostat (2018) showed that Switzerland had a trade surplus of €48 billion surplus.
- The EU exports to Switzerland were dominated by “other manufactured products”, “machinery and vehicles”, and “chemicals”, which together accounted for 77% of EU exports to Switzerland.
- These same categories dominated EU imports from Switzerland.
Innovation
Despite its sleepy mountain image, Switzerland is a very innovative country. Over the years, Switzerland has been host to such historic inventions such as Velcro, Aluminium foil, and the World Wide Web (at CERN) to name just three.
With two of the worlds leading and top ranked universities located in Switzerland (ETH in Zurich and EPFL in Lausanne), there is no shortage of innovation and start-up activity. Almost too many to mention, some of the more recent innovations can be found here.
Through its typical organisation discipline Switzerland hosts leading international forums and associations. The Crypto Valley Association specialising in Blockchain activities and development is just one.
Politics & Mentality
- Switzerland operates a unique political system though a direct democracy.
- In addition to “normal” voting rights given in democracies, the Swiss also have the right to vote on a multitude of specific issues, especially those involving government spending.
- In fact, citizens can propose changes to the Swiss Federal Constitution if they disagree and assuming they collect 100’000 valid signatures within 18 months.
There are 26 cantons in Switzerland and all are members of the Swiss Confederation. Switzerland is governed by the Federal Council, a seven-member body whose decisions are made by consensus. And the presidency of the council rotates each year. With this construct, Switzerland has one of the most stable governments in the World.
The Swiss people have a pronounced democratic understanding and support diversity, tolerance and the separation of state and religion. In conflict situations, Swiss people rely on cooperation rather than confrontation. This could be one reason for the absence of work strikes over the years.
Switzerland is a small but very resilient country. It operates a unique political system that ensures stability and continuity. The Swiss people are well-organised and disciplined, and plan for events such as disasters and economic downturns, both collectively and individually. They are good at spotting trends and organising support groups and associations to take advantage of these rapidly.
Through the different geographic and language areas, the Swiss have developed a system that works for all its citizens, no matter which language group or geographic area.
Is Switzerland’s economic success down to good luck or planning? As Benjamin Franklin famously said: “If you fail to plan, You are planning to fail”. With Switzerland renowned for its planning, organisation and discipline, we will leave that to the reader to decide.
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