Switzerland has navigated Covid-19 well, says IMF

Informing visitors to Ascona where they have to wear masks Keystone / Alessandro Crinari

The Swiss response to the Covid-19 pandemic has received good marks from the International Monetary Fund (IMF). However, it said there was still work to be done, in addition to addressing pensions, the environment and relations with the European Union.

Economic growth in Switzerland should reach 3.5% this year and 2.8% in 2022, the IMF predicted in its annual reportExternal link, published on Wednesday. In 2020 the Swiss economy contracted by 2.9%, less than other economies in Europe.

“This reflected strong fiscal, financial and household buffers, highly-competitive export industries (e.g., pharma, chemicals), a large and well-capitalised financial sector, low dependency on contact-intensive sectors (e.g., tourism), a well-resourced health system, carefully-targeted containment measures (e.g., no widespread closure of manufacturing), and ongoing adaptation,” the IMF said.

The policy response to the pandemic was “strong, swift and sustained”. The authorities quickly provided emergency measures exceeding 10% of GDP for households and businesses.

However, uncertainties remain high, dominated by the dynamics of the pandemic, it warned. How quickly vaccinations are carried out and how the third wave develops will play a role.

IMF report

The IMF delegation conducted this year’s country review from March 17 to April 7 via video conference. Last year, no examination took place because of the pandemic.

The IMF is a specialised agency of the United Nations (UN). The most important task of the IMF is to prevent financial crises and to support countries in crisis. To this end, it regularly examines the financial and economic policies of member states and, where necessary, identifies risks.

Either way, the IMF said the crisis was likely to have “scarring effects” – effects that will be visible long after the pandemic. This is particularly true in sectors where demand may be slower to recover, for example hospitality or events. Although unemployment, debt and insolvencies have not risen sharply, this could change if government support measures were lifted.

The IMF recommended the measures on the labour market be maintained until “sustained recovery is underway” in order to preserve jobs.

However, it believed greater coordination between the government and the cantons “would increase the efficiency, effectiveness, and timeliness of intervention”.

EU, pensions and the environment

Turning to other issues, the IMF pointed out that in the talks with the EU, “progress is needed” to ensure Switzerland keeps its current access to the EU market.

The Swiss government is shortly due to announce its position over an impasse in talks with the EU over an umbrella accord for its more than 120 bilateral agreements.

The IMF also saw the longer-term security of pensions as important. “The Swiss pension system is not well aligned with demographic (ageing, life expectancy)  or economic trends,” it said. Without decisive reforms, it predicted significant funding gaps by 2030, adding that far-reaching reforms were needed, including a greater increase in the retirement age.

Switzerland also needed a clear, verifiable plan to implement its climate strategy. Other advanced economies were launching “Green New Deal” programmes to achieve their climate goals, the IMF said. Although Switzerland was making and planning environmentally friendly investments in public transport, roads and railways, “consideration should be given to further targeted measures”.