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IMF expects moderately firmer GDP growth in Switzerland in 2024

Updated at 28 Mar 2024 12:00 pm

According to the International Monetary Fund (IMF), the Swiss economy should pick up again in 2024. At the same time, the IMF gave Switzerland good marks for its monetary and budgetary policy in its annual country assessment. However, important issues still need to be resolved regarding the regulation of the megabank UBS.

The IMF expects Switzerland's gross domestic product (GDP) to grow by 1.3% in 2024, as the head of the IMF delegation Pelin Berkmen explained to the media on Thursday. Adjusted for the effect of sporting events such as the Olympic Games and major football events, the GDP forecast stands at 1.0 percent.

The IMF and other institutes are therefore assuming that the Swiss economy will grow. Last year, weak foreign demand and key interest rate hikes by the Swiss National Bank (SNB) pushed GDP growth down to 0.8%.

The gradual recovery in foreign demand, lower inflation and the easing of monetary policy would support economic growth, it said. In addition, the labor market will remain robust, even if the unemployment rate rises slightly from the historic low of 2% to 2.3% in 2024.

The IMF expects Switzerland's GDP to grow by 1.4% in 2025. Adjusted for sporting events, growth is even expected to reach 1.7 percent.

SNB interest rate cut right

The IMF applauds the SNB. As inflation has clearly returned to the price stability range of between 0% and 2%, the SNB was right to lower its key interest rate in March. According to the IMF, inflation is likely to remain within this range this year at 1.5%.

Price-driving factors need to be kept in mind, Berkmen emphasized. For example, rents are likely to rise due to the higher reference rate and there is also inflationary pressure from electricity prices. At the same time, the SNB must use the leeway available to it to reduce its large balance sheet.

However, the IMF expert noted that Switzerland's budgetary policy is well anchored with the debt brake. However, the increasing pressure on spending requires measures to eliminate structural deficits. Among other things, Berkmen referred to the financial security of the pension system.

Drawing lessons from the CS crisis

On the subject of the takeover of Credit Suisse by UBS, the IMF noted that this step had strengthened the stability of the financial sector. It is now important to learn the lessons from this crisis situation and to strengthen regulation, particularly with regard to the size and complexity of UBS.

Berkmen did not make any recommendations as to how Switzerland should keep the risks of the megabank UBS under control. First of all, the analyses of the SNB and the Swiss Financial Market Supervisory Authority (FINMA) as well as the Federal Council's report on the review of the too-big-to-fail regulations, which is expected in April, must be awaited. The IMF will then reassess the situation.

However, Berkmen referred to the recommendations on banking regulation formulated by the IMF back in 2019, according to which FINMA would need to be equipped with significantly greater resources in order to be able to intervene as early and effectively as possible in the event of problems. The basis for supervision is a risk-focused and forward-looking approach and FINMA needs instruments such as sanctions or fines in order to be able to punish offenses appropriately.


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