IMF tells Swiss to liberalise to boost growth

Swiss industry still has some improvements to make, says the IMF Keystone

The International Monetary Fund (IMF) has given the Swiss economy the thumbs up in its annual report.

It said the economy was on the path to recovery but warned that liberalisation and other market reforms were needed to stimulate growth.

In its annual assessment of the Swiss economy, the IMF said that after having flirted with recession for the past three years, there were encouraging signs of growth, with Gross Domestic Product (GDP) up by an estimated two per cent in 2003.

But it pointed to “major uncertainties” in the form of the faltering recovery of Switzerland’s key trading partners and negative shocks to the exchange rate.

For these reasons, the IMF delegation – which was in Bern for ten days – forecast a 1.75 per cent rise in GDP for 2004.

Level playing field

The IMF’s major recommendation was that Switzerland should free up its market.

It said that a level playing field for product and services markets across Switzerland should be a top priority. The IMF also said that the main policy challenge in the medium-term was to boost growth.

“In this regard, structural reform in product markets is critical,” the report said.

The organisation added that restrictive practices had led Swiss prices for non-traded goods and services to be among the highest in the world.

Liberalising these markets, it argued, would result in both lower prices and higher output.

“Staff estimates that structural reforms of these types could raise GDP growth by at least one per cent a year in the medium term,” said the IMF.

More to be done

The IMF report comes less than two weeks after the Swiss economics minister, Joseph Deiss, warned that the government needed to find new ways of cutting public spending by SFr2.5 billion and balancing the budget.

Despite cuts of SFr3.5 billion already voted by parliament, the authorities say they have no choice but to implement another cost-cutting programme.

Deiss also put forward a 17-point plan to kick-start the economy without digging into public coffers.

The IMF welcomed the move but warned that extra measures would be needed.

“The proposed supplementary fiscal package… is a significant move in the right direction,” said the IMF.

“But staff estimates that [substantial] measures could be needed beyond the SFr2.5 billion currently envisioned by the authorities.”

Sound basis

But the IMF did offer some positive results as well, saying that Switzerland’s financial policies offered a sound basis for economic growth.

It added that the Swiss National Bank’s monetary policy of maintaining low interest rates was the right way to spur growth.

The head of the federal finance administration, Peter Siegenthaler, said the report was a “fruitful look [at Switzerland’s economy] from the outside”.

He added that it was urgent that the deficit was addressed at a federal level and this would be a way of helping further economic development.

Second warning

The IMF’s findings come just over a month after the Organization of Economic Cooperation and Development (OECD) took Switzerland to task in its own survey for not implementing faster structural reforms.

It said the country needed to become more competitive and boost growth if it was to maintain high living standards.

The OECD also said that increasing growth was the main policy challenge facing the nation.

swissinfo

In brief

The IMF estimated a real GDP growth of two per cent for 2003 for Switzerland.

But it predicted GDP growth of 1.75 per cent for 2004, in line the government forecasts.

The IMF also warned that more liberalisation was needed to stimulate growth.

It said that restrictive practices had led Swiss prices for non-traded goods and services to be among the highest in the world.

Liberalising these markets would would result in both lower prices and higher output, and boost GDP by up to one per cent.