The assessment of the economic and fiscal situation of its member states is part of the IMF’s economic policy supervision activities (in accordance with article IV of its statute). Between the 22nd February and 4th March 2002, a delegation from the IMF met with representatives of the Federal Administration, the Swiss National Bank and the private sector, in order to conduct its annual country consultation with Switzerland. At the end of its mission, the delegation came to the following conclusions:

Following slower economic growth last year there are several signs pointing to an upswing, initially in the export sector, driven by the improved economic situation in the US and in Europe. For 2002, the IMF expects a growth rate in real GDP of just under 1 per cent, which represents a rather reserved estimate in the view of the Swiss authorities. According to the IMF, unemployment levels at the end of 2002 may be slightly higher than those in the previous year.

Low risk of inflation

The risk of inflation is judged by the IMF to be very low. The monetary policy concept of the Swiss National Bank is working well and is well understood and accepted by the financial markets. The IMF recommends a further expansion of information provided by the SNB regarding inflation forecasts and monetary policy decisions.

Swiss fiscal policy optimally supports economic recovery; however, the IMF warns of renewed budget deficits at federal level. New, additional expenditure and tax relief should be postponed for the time being so as to fulfil the requirements of the debt brake policy which was anchored in the constitution in December 2001. (The aim of the debt brake is to enable a balanced budget over the economic cycle.) The IMF advises using one off revenues such as those arising from the buyback of Swisscom shares for debt reduction purposes.

Robust Financial sector

Based on the provisional conclusions of the financial sector evaluation in the framework of Switzerland's participation in the Financial Sector Assessment Program (FSAP), the Swiss financial sector is judged overall to be robust. Both the banking and insurance sectors showed themselves to be a match for the challenges of an adverse market environment, thanks also to their sophisticated early warning systems. The risks of continued negative market developments should not, however, be underestimated, especially in the area of pension funds. In this regard financial supervision plays an important role. This is judged by the IMF to be effective thanks also to the continual adjustments to changing market conditions. Here the IMF welcomes the proposed reform to create an integrated financial supervisory authority. The final results of the FSAP will be published as a background paper together with the country assessment in June 2002.

According to the IMF, the Swiss economy is benefiting in this period of economic recovery from the restructuring which took place in the 1990's. Switzerland has a competitive export sector and a dynamic financial sector, which have been able to preserve their strengths despite the long-term appreciation of the Swiss franc. The bilateral agreements with the EU will contribute to a slight increase in medium-term potential growth of almost 2 per cent. In the longer term, however, a declining working-age population due to demographic changes in population structure will present the economy with new challenges.

In terms of structural reforms, the IMF welcomes proposals for a tougher competition law. Insufficient competition in the "last mile" is considered by the IMF to be a stumbling block in the telecoms sector. Other important reform projects concerning liberalisation in energy and agriculture sectors are ongoing.

The collapse of Swissair has placed the spotlight on corporate governance in Switzerland. Here the IMF sees the need to improve transparency, accounting standards and the representation of shareholder's interests. Initial steps have already been taken by 'economiesuisse' and the Swiss Stock Exchange SWX.

Further details:
Giorgio Dhima, Fed. Finance Administration Tel. +41 31 322 60 48

4 March 2002