International Monetary Fund supports Switzerland's economic policy and decisive action to preserve financial stability

Bern, 04.04.2023 - At the conclusion of its annual consultations with the Swiss authorities and the private sector, the International Monetary Fund (IMF) has published its assessment. According to this, the Swiss economy has proved resilient in a challenging environment. However, for 2023, the IMF expects that growth in Switzerland will slow to 0.8% and that inflation will remain above 2%. Given the global economic situation and the risks stemming from the financial markets, Switzerland's budgetary, monetary and financial sector policy were appropriate. The IMF acknowledged the authorities' decisive action with regard to the takeover of Credit Suisse by UBS.

The accounts at all levels of government will also remain positive in 2023, despite the absence of a profit distribution from the Swiss National Bank (SNB) and elevated outlays on migration, energy and security. This, combined with the low level of debt, provides Switzerland with the leeway to implement targeted support measures in the event of a severe downturn. The Confederation's projected elevated funding needs will require discipline on spending, as well as the maintenance of tax receipts.

Given the inflationary pressure, the tightening of monetary policy is appropriate. The SNB should proceed in a data-driven manner, continuing to raise interest rates if inflation does not fall. Such raises would also keep inflation expectations anchored in the event of more persistent inflation.

The IMF team noted that Credit Suisse’s failure reflected weaknesses in internal controls, risk management lapses, repeated regulatory breaches, financial losses, and in the end, deposit outflows. According to the Fund, the authorities acted decisively to preserve financial stability and prevent potential spillovers to the global banking sector. The IMF expects that the Swiss authorities will closely monitor the merger of UBS and Credit Suisse, including with regard to domestic competition. There should also be an analysis of the lessons learned in terms of financial market regulation and oversight. The review of the too-big-to-fail regulatory framework for global systemically important banks is also of significance at the international level. Financial stability should continue to be the top priority, and price developments on the real estate market should be monitored.

The IMF team also commented on Switzerland's policy to ensure the energy supply and tackle climate change. The labour market situation and the progress of old-age pension reforms were also mentioned. Disruptions to global value chains would dampen the growth outlook for a medium-sized, open economy such as Switzerland. The IMF sees advantages in continuing orderly relations with the EU.

The regular evaluation of the economic and financial situation of its member states within the scope of the Article IV Consultation is a core element of the IMF's economic policy monitoring activities.

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