The author is Global Head of Economics and Research at Credit Suisse
American policymakers and businesses looking to prepare for a more sustainable future in the wake of the coronavirus pandemic may want to look to the success of a smaller, more developed state – Switzerland.
Switzerland consistently tops the charts for innovation, competitiveness and quality of life, despite representing a $706 billion economy and a population of just 8.7 million. It is also the richest country in the world in terms of wealth per adult. Its public sector is lean, with public debt representing only 43% of gross domestic product. The institutional and real infrastructure is solid.
The Swiss record in managing Covid-19 is not significantly better or worse than elsewhere. It recently reported 2,468 new cases per day per million population, with 67.2% of its total population fully vaccinated. This compares to 1,994 cases per million in the United States, which has a vaccination rate of 62%. But its economic record and prospects for the years to come, whether Covid-19 becomes endemic or not, look promising. The reasons for this success are as relevant for large states as for small states.
First, Switzerland has a high share of “teleworking” activities. During the pandemic, 34.1% of employees worked remotely at least occasionally, sectors such as information technology (76.3%), finance (61.4%) and education (54, 7%) reaching even higher shares in 2020.
This allowed the country to adopt a pragmatic and generally less brutal approach to Covid containment, with the result that its economy contracted less than others in 2020 and rebounded faster in 2021. Indeed, at By the end of last year, the Swiss labor market had weathered the Covid shock, with unemployment hovering very close to pre-pandemic levels at just 2.4%. Swiss business order books are full, consumer confidence is strong and GDP is expected to grow by 2.5% in 2022, above pre-pandemic levels.
In the United States and elsewhere, enabling more remote work appears to be an important prerequisite for increasing labor market participation. This would be welcomed by workers and families, who could move to safe and affordable places to live while making metropolitan areas less congested.
Second, Switzerland has benefited from a thoughtful and sensible fiscal policy. While strongly supporting sectors negatively affected by the pandemic – including tourism, hospitality and personal services – the government has kept some of its fiscal firepower in reserve. The budget deficit was only minus 2.2% in 2020 and minus 2% in 2021, compared to minus 12.4% in the United States in 2021.
This has kept public debt at 42.7% of GDP in 2021, compared to 133% in the United States, and has kept the economy from overheating, even if it still encounters the type of supply chain difficulties. and delivery faced by other developed countries.
As a result, inflation, which stood at 0.6% in 2021, is expected to remain comfortably within the Swiss National Bank’s price stability range throughout 2022. Indeed, the central bank has not raise interest rates, which the US Federal Reserve now needs to do to restore price stability and maintain credibility.
The last important factor in Switzerland’s success is its energy policy, which focuses on grid resilience. The country is fortunate to be poor in fossil fuels but rich in water. As a result, 55% of its national electricity production is hydraulic. Yet, importantly, Switzerland has also maintained a 35% share of nuclear power generation, supplemented by 5% of other renewables. The risks of an energy crisis are contained in Switzerland.
The risk is rather a threat elsewhere in Europe and the United States. Here, rethinking the optimal energy mix to keep electricity prices stable and competitive should be a key priority.
Another way to ensure a resilient and financially viable future is to avoid boom-and-bust cycles of stimulus followed by austerity. Switzerland’s record in this regard is reflected in the status of the Swiss franc as a safe haven currency. This means that the franc is sometimes overvalued in times of crisis, forcing the Swiss National Bank to intervene in the foreign exchange markets. But it has also given Switzerland a more favorable inflation outlook than many countries face.
Thus, the Swiss National Bank can now maintain its very expansionary monetary policy and allow the Swiss franc to appreciate against the euro. This means that Swiss yields should remain low, providing attractive conditions for Swiss companies to invest, innovate and maintain their competitive edge.