Switzerland

major macro economic indicators

(e): Estimate (f): Forecast

RISK ASSESSMENT

Better economic situation thanks to lower inflationary pressures

The Swiss economy has been more resilient in 2023 and has a moderately better outlook for 2024 than its Western European neighbours. One big difference is that private consumption in Switzerland is relatively robust, supported by several factors. Due to the strong dependence on nuclear and renewables (especially hydropower), energy price pressures were lower than in many other Western European economies in recent years. Thanks to a strong Swiss Franc, imported inflation remained low. Accordingly, the Swiss inflation rate fell below the 2% target of the Swiss National Bank (SNB) in June 2023 and will likely remain there despite upward pressures coming from the property market. The mortgage reference interest rate (“hypothekarischer Referenzzinssatz”), given by the Swiss government to regulate the market and to guide banks, was raised from 1.25 to 1.5% in June 2023, but the full effect will only be felt over autumn 2023. Moreover, rents will increase further as landlords can transfer 40% of the inflation increase to their tenants. For 2024, the mortgage reference interest rate should remain unchanged. After increasing as much as inflation in 2023, wages are expected to outpace inflation in 2024, resulting in positive real wage growth. However, the main impact on private consumption comes from a sharp increase in the population, due to the highest level of immigration in the last 15 years. The University of Zürich estimates that the population has increased by 1.4% in 2023 and will further grow by 1.2% in 2024 (noticeably above the average of 0.8% in the last three years). As the labour market remains very tight, this will increase employment and bolster consumption in Switzerland.
The relatively low level of inflationary pressures led to a smaller increase of the policy rate by the SNB compared with other major central banks. Yet, given the still high level of inflation (by Swiss standards), the SNB should keep its policy rate unchanged - at its highest level since 2008 - until mid-2024 and then decide on the first single rate cuts in the second semester. The higher interest rates have a dampening effect on private investments. Nevertheless, they should still show some modest growth in the second half of 2023 and rise further in 2024. Although the manufacturing sector trembled somewhat in 2022 and the first half of 2023, the capacity utilization is relatively high, hinting at higher investments in equipment. More investments are expected too in the construction sector, as after a big push in investments in 2017, construction activity subsided in recent years. The vacancy rate eventually started to fall by mid-2023, and with an increasing population, construction investments should slightly increase in 2024. Finally, foreign trade should remain a positive driver for economic growth as many export products are in the luxury (watches) and high tech (pharma, medical, precision, etc.) segments, and therefore less dependent on the economic cycle.

Public accounts in good shape

After three years of deficits, the public accounts should have returned to a tiny surplus in 2023, as the debt brake (accounts must be balanced out via the complete economic cycle) came into effect again. While tax revenues should have increased noticeably and the expenses to integrate Ukrainian refugees are somewhat decreasing, the expenditure around the public transportation system and a subsidy for public employees to balance out inflation will limit the public budget surplus. In 2024, the measures to limit inflation’s impact on households should be lessened and likely lead to a larger surplus.
The country consistently posts a large current account surplus, thanks to the considerable goods surplus (in 2022: 15% of GDP). Despite finance and insurance, as well as sport licenses (e.g. the FIFA and IOC), playing an important role in the Swiss economy and external accounts, the services balance and the primary income balance (e.g. income from financial market operations abroad) are structurally in a small deficit. The structural deficit of the secondary income (transfer) balance adds to it, which is a result of foreign workers who work in Switzerland and send part of their income home. In 2022, a strong reduction in the trade in services deficit (maybe related to the UEFA world championship in Qatar in December) and an improvement in the goods trade surplus (related to the good terms of trade thanks to a strong Franc) led to a very high current account surplus. With the normalization of the services balance, the current account in 2023 should return to a level comparable with 2021 and should stay in this area in 2024.
Swiss assets abroad allow the country to have a substantial positive net foreign investment position (103% of GDP at the end of March 2023), the size of which varies with stock market prices and the USD/CHF exchange rate.

Stable domestic political situation, but hiccups in the foreign policy

Due to the Swiss tradition of political consensus, the political system is extremely stable. The main decisions are taken by plebiscites. The Federal Council (= government) comprises seven ministers. The position of the president is elected within this group for one year and alternates. Since 1959, the federal council is composed by the so-called “magic formula”, according to which the first three parties in the results of the general election get two seats in the Federal council and the fourth party gets one seat. As of summer 2023, the social democratic SP, the national-conservative SVP and the liberal FDP had two seats, while the Christian-democratic Center party had one seat. The next parliamentary election is scheduled for late October 2023. In the last election in 2019, the left-wing environmentalists (Greens) came in fourth place but did not get into the Council. The Council’s partisan composition only changes if the candidate party finishes in the top four in two consecutive elections. However, it does not seem that the Greens can repeat this success as in the current polls and in the state election in the Zürich canton (which is considered a good indicator for the whole country), the centre-right parties gained ground at the expense of the Greens.
Relations between Switzerland and the European Union are increasingly uncertain at a political level. In May 2021, negotiations around an all-embracing trade agreement collapsed at the last minute, after Switzerland walked away from the negotiation. Since then, the EU has refused to update the existing trade-agreements and to work out new ones, with negative effects on the trade of equities, the allocation of European Research grants, or the integration of Switzerland into the European electricity market, for instance. In March 2023, Switzerland announced a resumption of talks, but little progress was made during the first months.
Another critical topic in Switzerland became its neutrality in the wake of the war in Ukraine. Switzerland applied the EU sanctions against Russia because of its breach of international laws. The parliament also unveiled a proposed amendment of the Swiss War Material Act, which would allow purchasers of Swiss-manufactured weapons to re-export these goods to Ukraine (which is currently prohibited by law). However, this topic is very controversial. In June 2023, Switzerland vetoed a plan to export 96 retired Leopard tanks to Ukraine, because of the neutrality laws.

Last updated: September 2023

Payments

Bills of exchange and cheques are not commonly used in Switzerland, due to prohibitive banking and tax charges. The stamp duty on bills of exchange is 0.75% of the principal amount for domestic bills and 1.5% for international bills.

Commercial operators are particularly demanding regarding the formal validity of cheques and bills of exchange as payment instruments.

Domestic and international payments are commonly made by bank transfer − particularly via the SWIFT electronic network to which the major Swiss banks are connected. SWIFT provides rapid and efficient means of processing of payments, at low cost. 

Debt collection

The Swiss legal system presents technical specificities, notably:

• The existence of an administrative authority known as the Enforcement and Bankruptcy Office (Office des poursuites et des faillites / Betreibungs und Konkursamt / Ufficio di esecuzione e fallimenti) in each canton, with several offices at local government level which are responsible for executing court orders. Their functions are regulated by federal law. Interested parties can consult or obtain extracts from the Office’s records;
• A new, unified civil procedure code, created by a commission of experts and approved by the Federal Council, became effective in 2011. This code entailed the repeal of the 26 cantonal procedure laws which were hampering the efficiency of the judicial system. Nevertheless, lawsuits require the assistance of a lawyer who is familiar with the court organisation in the jurisdiction where the case is has been initiated, as well as with the language to be used in the litigation process (French, German or Italian).

Amicable phase

The debt collection process commences with the issuing of a final notice, preferably by recorded delivery (making it possible to accrue overdue interest). The notice requests the debtor to pay, within two weeks, the principal amount due, along with overdue interest calculated at the legal rate of 5% (unless otherwise agreed by the parties).

Legal proceedings

If payment is not forthcoming, the creditor can submit a signed and completed petition form (réquisition de poursuite) to the Enforcement and Bankruptcy Office. This Office then serves the debtor with a final order to pay within 20 days, effective from the date of notification of the petition.

While very easy to use by creditors, this procedure nonetheless permits debtors to oppose the order within 10 days of being served, without having to specify grounds. In such cases, without unconditional proof of debt to cancel the debtor’s opposition, the only recourse for creditors is to seek redress through a formal legal action.

Before commencing formal legal action, it is mandatory to proceed to mediation or conciliation before a Justice of Peace. This excludes disputes falling within the jurisdiction of the Commercial Court of Zurich, or cases where both parties have agreed to ignore these proceedings and the claim is higher than CHF 100,000.

Legal proceedings entail initiating a formal (and now unified) procedure, comprising written and oral phases, with the possibility of examining witnesses during a court hearing. These procedures can last from one to three years, depending on the canton.

Conversely, where a creditor holds unconditional proof of debt signed by the debtor (any original document in which the buyer recognises his debt – such as a bill of exchange or a cheque), he may request the temporary lifting of the debtor’s opposition (main levée de l’opposition), without having to appear before the court. This is a simplified procedure, which is quick and relatively easy to obtain, and in which the court’s decision is based upon the documents submitted by the seller.

Once this lifting order has been granted, the creditor has 20 days in which to  refer the case before the judge to obtain the debt’s release (libération de dette) and subsequently obtain an executory order. Once the court hands down a final ruling, the Enforcement and Bankruptcy Office delivers an execution order or a winding-up petition (commination de faillite). This winding-up petition enables the creditor to send the court a request for bankruptcy. Upon receipt of this request, the court will fix a hearing and send a written notice to attend to both parties. If no payment is effected by the debtor and the creditor does not withdraw his request, the court will declare the debtor company bankrupt.

Either a court of first instance or a district court hears legal procedures. Commercial courts, presided over by a panel of professional and non-professional judges, exist in four Germanic cantons: Aargau, Berne, Saint-Gall, and Zürich.

Once an appeal has been lodged with the cantonal court, as a last resort for claims exceeding CHF 30,000, cases are heard by the main federal judicial institution: the Swiss Federal Court (Tribunal fédéral Suisse / Schweizerisches Bundesgericht / Tribunale federale svizzero), which is located in Lausanne.

Enforcement of a Legal Decision

Domestic judgments are enforceable once final. The court typically awards compensatory damages and orders to seize and sell assets. Punitive damages are not granted.

Switzerland’s domestic courts rapidly enforce court decisions falling under the scope of bilateral or multilateral reciprocal recognition and enforcement treaties − such as those issued in EU countries or under the Lugano Convention (which concerns Norway, Denmark & Iceland). Decisions rendered outside Europe are obliged to follow Swiss exequatur proceedings.

Insolvency Proceedings

Restructuring proceedings

Restructuring proceedings (Nachlassverfahren) can be initiated either by the debtor or the creditor. The administrator takes the necessary measures to prepare for the creditor and court approval of the composition agreement. An inventory is then taken, where all assets are valued. Approval of the agreement requires the affirmative vote of a quorum of either a majority of creditors representing two-thirds of the total debtors, or a quarter of the creditors representing three-quarters of the total debt. Once approved, the agreement must be confirmed by the Court. It then becomes valid and binding on all creditors of claims subject to the agreement.

Bankruptcy proceedings

A company may be declared bankrupt by the court and placed into bankruptcy proceedings if a creditor has successfully requested this, following a debtor’s declaration that it is insolvent. The court will determine whether summary or ordinary proceedings should be applied, or whether bankruptcy proceedings will go ahead (if the assets are insufficient to cover the expected costs of proceedings). The Receiver then draws up an inventory. Summary proceedings are ordered if the proceeds of the assets are unlikely to cover the costs of ordinary proceedings. In this case, there are no creditors’ meetings and the bankruptcy office will proceed to the liquidation and realisation of the assets, without the participation of the creditors.

If ordinary bankruptcy proceedings apply, the receiver publishes a notice of bankruptcy instructing all creditors and debtors to file their claims and debts within 30 days. This notice invites creditors to a first meeting (where they may appoint a private receiver instead of the state bankruptcy office) and a creditors’ committee. A second meeting will be convened for the commencement or continuation of claims against third parties and to agree the method for realisation of the assets belonging to the bankruptcy estate.