14/03/2024 – Switzerland has shown remarkable strength during the COVID-19 pandemic and the recent turmoil in energy markets following Russia’s war of aggression against Ukraine. With a dynamic economy, a highly skilled workforce and prudent macroeconomic policies, unemployment and inflation are low, and living standards are among the highest in the OECD.
The latest expects Swiss gross domestic product (GDP) growth to remain moderate at 0.9% in 2024 but to pick up again to 1.4% in 2025. Inflation, though down from its levels in 2022, will temporarily rise again above 2% over the course of 2024, pushed up by rent and electricity price increases as well as changes to value-added tax rates, before declining in early 2025.
Thanks to a strong fiscal framework, Switzerland’s fiscal position is solid. The public debt-to-GDP ratio, at 37% in 2023, is low by international standards. Addressing growing spending pressures from population ageing and the green transition would help to ensure fiscal sustainability. Systematic spending reviews could identify fiscal savings, while broadening the base and increasing the rate of the value-added tax as well as increasing taxes on immovable property could help to raise revenues.
Geopolitical tensions, shifts in trade patterns and tight financing conditions are raising challenges to growth. In this context, Switzerland’s commitment to the rules-based trading system is highly welcome. Further enhancing economic integration with key trading partners and facilitating the diversification of supply chains by extending and deepening free trade agreements would allow the country to maintain its high productivity. Reducing the administrative burden and increasing competition would improve the framework conditions for businesses.
Switzerland has a comprehensive stockpiling system and detailed plans to deal with supply chain disruptions of essential goods and services. Maintaining crisis management systems can dampen the adverse effects of crises on the domestic economy, help to protect vulnerable households, ensure rapid economic recoveries and raise long-term growth.
To counter the effects of a rapidly ageing workforce, Switzerland should increase the labour market participation of women, older workers and immigrants. Reforming the tax and benefits system to reduce disincentives to work for second earners would encourage higher labour incomes for women. Continuing expanding the supply of childcare and reducing its costs would help mothers return to work full-time. Introducing more flexibility to combine retirement and work would encourage longer working lives. Allowing international students from non-EU countries more time to find a job after completing their studies would facilitate their labour market access.
Tackling climate change is a key challenge for Switzerland as an Alpine country which is strongly impacted by climate change. Switzerland has the lowest greenhouse gas emissions per unit of GDP in the OECD, but emissions reductions will have to accelerate markedly to achieve net-zero by 2050. This will require a further strengthening of carbon pricing as well as large investments in renewables, such as solar and wind.
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