IMF says Swiss economy is in slow motion

Outgoing World Bank President James Wolfensohn is attending his last spring meeting with the IMF Keystone

On the eve of its spring session with the World Bank in Washington, the International Monetary Fund (IMF) is less than enthusiastic on the subject of Switzerland.

It is critical of the slow pace of economic and social reforms in the country and its forecasts are gloomy.

The IMF and World Bank meeting takes place this weekend in Washington, where the two Bretton Woods institutions have their headquarters.

The Swiss delegation is led by cabinet ministers Joseph Deiss and Hans-Rudolf Merz. Jean-Pierre Roth, president of the Swiss National Bank, will also attend.

Deiss is expected to meet Paul Wolfowitz, the controversial new president of the World Bank whom Switzerland backed, and who takes up his duties on June 1.

But as the session approaches, figures published by the IMF in its “Global Economic Perspectives” are not good news for Switzerland. The three main indicators used by the IMF point in the wrong direction as far as the Swiss economy is concerned.

Slow growth

The IMF is forecasting a slowdown in growth of 0.5 per cent this year compared with last year. It says the rate of growth will reach just 1.2 per cent this year, compared with 1.7 per cent last year.

The institution foresees a recovery in 2006 with growth of two per cent. But even if that happens the Swiss economy will still be growing at a rate that’s below the average of eurozone countries – and even further below the average of industrialised countries.

The IMF also forecasts an increase in unemployment (up 0.1 per cent in 2005 and 0.2 per cent in 2006) and inflation (up 0.3 per cent).

But the Swiss figures for inflation and especially unemployment are still much better than those projected for the eurozone and the developed countries as a whole.

For Switzerland, the IMF is forecasting an unemployment rate averaging 3.5 per cent this year and 3.7 per cent next year, whereas the average of the eurozone will be well over eight per cent and that of the industrialised countries will exceed six per cent.

Speeding up reforms

Socio-economic analysis produced by experts at the international financial institution is by and large negative. IMF economists, who carried out an assignment in Switzerland, believe that “structural worries remain” and “reforms are proceeding too slowly”.

In their report, the economists note that “the Swiss public are increasingly aware that prices and the cost of living are much higher in Switzerland than in neighbouring countries”.

The experts believe that despite “certain progress being made currently, important obstacles to higher growth still exist”.

The IMF singles out import taxes, farming subsidies, and domestic trade as being “seriously weighed down by segmentation and bureaucracy”. It adds that “much remains to be done” in the energy, telecommunications, postal and railway sectors.

“The lack of a common market and competition in Switzerland saps all dynamism and thus slows down growth and the creation of jobs,” commented the IMF experts.

The international economists warn that “fiscal and monetary policies are no substitute for the structural reforms that are needed”.

The IMF recommends a series of painful measures. From the reduction of the national debt – at both the cantonal and federal level – to pensions and health insurance reform and an end to the indexation of rent to mortgage rates.

swissinfo, Marie-Christine Bonzom in Washington

Key facts

The IMF expects the rate of growth in Switzerland to reach only 1.2% this year, compared with 1.7% last year.
Unemployment is expected to go up by 0.1% in 2005 and 0.2% in 2006. The IMF also predicts an increase in inflation of 0.3%.