IMF anticipates temporary economic slowdown in Switzerland in environment of increased risks

Bern, 01.04.2019 - The International Monetary Fund (IMF) commends Switzerland's resilience since the financial crisis, the solid state of public finances and the monetary policy stance. It sees an enhanced role for fiscal policy in strengthening growth potential and addressing the challenges of technological change and ageing. It also acknowledges the progress made with regard to the stability of the financial sector, but considers the planned revision of deposit insurance to be insufficient. The IMF continues to see potential risks in the global environment and in the domestic real estate and mortgage markets, particularly in residential investment property. It also sees risks if the corporate tax reform is rejected by the people.

The Swiss economy has performed quite robustly in recent years. In recent months, however, it has lost momentum primarily due to weaker foreign demand, and the IMF expects growth to slow to 1.1% in 2019. It should recover moderately again next year.

The IMF experts continue to see risks for the economy in a possible intensification of international trade tensions, uncertainties in the European environment, including Brexit, and imbalances in the Swiss real estate and mortgage sectors.

The IMF acknowledges the success of monetary policy in buffering exchange rate fluctuations and stabilising inflation in a difficult environment. This is particularly true in view of the limited scope for monetary policy with low interest rates abroad and the possibility of large capital inflows into the Swiss franc (safe haven).

The IMF attests to the solid state of public finances. It reiterates the importance of public investment in strengthening growth potential through sufficient investment in growth-enhancing infrastructure and necessary social security reforms. In the eyes of the IMF, an enhanced economic stabilisation role for fiscal policy could also help to ease the burden on monetary policy. From Switzerland's viewpoint, however, domestic demand and spending by government-related sectors such as health have already bolstered the economy significantly in recent years, while the considerable appreciation of the Swiss franc has slowed growth during this period.

In Switzerland, the most pronounced risk to financial stability is currently seen in possible developments on the real estate and mortgage markets, especially in the case of residential investment property. The resilience of the financial sector has been strengthened in recent years and capitalisation and liquidity in the banking sector have been increased. Nevertheless, the IMF recommends using additional instruments to mitigate risks in the real estate and mortgage markets and continued improvement in the framework of financial market regulation and supervision.

The IMF delegation conducted this year's country evaluation in Bern and Zurich from 21 March to 1 April 2019. The regular evaluation of the economic and financial policies of its member states within the scope of the Article IV Consultation is a core element of the IMF's surveillance mandate.

A comprehensive review of the financial sector has also been under way since May 2018 as part of the Financial Sector Assessment Programme. This review, which is mandatory for IMF members with an important financial centre, is carried out about every five years. Here the stability of the financial sector and compliance with international standards for the supervision of banks, insurance companies and the financial market are assessed.

The reports on the Article IV consultations and the financial sector review are expected to be published in mid-June after their approval by the IMF Executive Board.

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