On 6 April 2022 the IMF issued a report following discussions with Switzerland under Article IV of the IMF’s articles of agreement.

The Swiss economy recovered in 2021 following the crisis caused by the pandemic, with growth reaching 3.7% and employment rising above the level before the crisis. The recovery was uneven, with sectors such as hospitality and transport having a slower recovery. The economic recovery was facilitated by domestic policies, including adaptation of support policies during the pandemic, combined with a stronger global economy. Strong exports in areas such as watches, precision instruments and pharmaceuticals also made a contribution.

Economic growth is expected to be around 2.25% in 2022, with potential growth of around 1.5% in the medium-term. Growth has been dampened by the effects of the war in Ukraine although direct exposures to the war are relatively low. Indirect effects of the war include higher prices for energy and commodities, disruptions to the supply-chain and lower regional growth. The government is continuing with supportive policies and the IMF report considers that higher household savings during the pandemic could lead to increased consumption and growth. The consequences of the war in Ukraine are expected to continue affecting the economy in 2023, with projected growth slightly under 1.5%.

The effects of the war and uncertainty about its duration and scope and the extent of the refugee problem continue to present downside risks to the economy. The effects are being felt in commodity prices, financial exposures, trade, inflation, global financial conditions, and growth. The effects of the war on energy supplies could cause large price increases and reduce growth. There are further downside risks from future developments in the pandemic and from imbalances in the real-estate market where steep interest rate rises could result in price corrections and impacts on households, financial institutions, and economic activity.

The support given by the government during the pandemic is being phased out in 2022 but the IMF report recommends that in view of the uncertainty the government should closely monitor the situation and address adverse circumstances as they arise.

In the longer-term the economic challenges include those arising from the aging population; the need to support the climate objectives; the likelihood of higher spending to provide energy security and strengthen national defence; and tax reforms that could lead to lower revenue in some cases.

The IMF considers that the implementation of the OECD/G20 reforms to global corporate income tax could bring temporary gains in revenue. Measures taken to maintain the attractiveness of Switzerland as a business location are considered likely to be limited in scope. Dialogue is needed between the taxpayer companies and the cantons at an early stage in the reforms to ensure that there is timely implementation without undue risks.

As there are new policy priorities involving higher expenditure and the possibility of lower taxes there is a need for offsetting measures in other areas. A medium-term strategic plan would be helpful to outline increased government spending in priority areas and to manage the possibility of revenue losses. The tax reforms should aim to make the tax system less distortive and to maintain or increase tax revenues.

The residential property market could be helped by adjustments to the tax system, for example the abolition of imputed-rent taxation, and support for the rental market. In view of the supply-side constraints, the government could consider investments to improve infrastructure.

Reallocation of workers to different jobs or sectors is supported by labour policies focused on guidance and training. The government needs to close skills gaps and facilitate participation of older workers and of women in the labour market. Measures could include reducing incentives for early retirement, removing disincentives for hiring or retaining older workers, improving childcare and reducing tax disincentives for families with two earners.