OECD ECONOMIC SURVEYS 1982-1983 D 3 3 rj I 3 .) 7 I D :j } D II I C 3 ?J 3 ?J I B B D = D ? 1 ;! .V7 I D ;j .KJ 3 D I 7 I 1 0 P ul I IJ 7 SWITZERLAND D J) B A ?J I 3 .". 7 I D y D 1 0 D D ? I 3 .1 7 I D :i 17 D I D i 7 I I 3 ? P I ?,1 I ?J 7 I D 3 ?J D 17 I 3 U 1 3 MAY 1983 riX§X:B nrnrnnli'nrTmh| niTmnnnmmnl (cid:9)-(cid:9)! i- ! V E S - . ?< E N C E S | ; PRÊTÉ - ! ; eos OECD ECONOMIC SURVEYS^(cid:9)- (cid:9)-.-L~-- SWITZERLAND MAY 1983 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Pursuanttoarticle1 oftheConventionsignedinParison 14th December, 1960,andwhichcameintoforceon30thSeptember,1961,theOrganisation for Economic Co-operation and Development (OECD) shall promote policiesdesigned: - toachievethehighestsustainableeconomicgrowthandemployment andarisingstandardoflivinginMembercountries,whilemaintaining financial stability, and thus tocontribute to the development ofthe worldeconomy; - to contribute to sound economic expansion in Member as well as non-membercountries in the processofeconomicdevelopment;and - to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obliga¬ tions. The Signatoriesofthe Conventionon theOECDareAustria, Belgium, Canada, Denmark, France, the Federal Republic of Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain,Sweden,Swit7.erland,Turkey, theUnited Kingdomand the United States.ThefollowingcountriesaccededsubsequentlytothisConvention(the datesarethoseonwhichtheinstrumentsofaccessionweredeposited):Japan (28thApril, 1964), Finland (28thJanuary, 1969), Australia (7thJune, 1971) and New Zealand (29thMay, 1973). TheSocialistFederalRepublicofYugoslaviatakespartincertainworkof the OECD (agreement of28thOctober, 1961). ©OECD, 1983 Application forpermission toreproduce ortranslate all orpart ofthis publication should be made to: DirectorofInformation, OECD 2, rue André-Pascal, 75775 PARIS CEDEX 16, France. TABLE OF CONTENTS Introduction I. Recent trends 8 Domestic trends 8 Demand and output 8 Employment and productivity 11 Wages and prices 11 Balance ofpayments and exchange rates 18 Balance on current account 18 Capital movements and exchange rates 22 II. Economic policy 25 Short-term stances 25 Fiscal policy 25 Monetary policy 30 Other recent economic policy measures 37 Some structural policy aspects 37 Regional aspects 38 Sectoral aspects: the textile industry 39 Energy problems and policies 41 III. Short-term forecasts 43 IV. Economic policy conclusions 46 Statistical annex 50 TABLES Text 1. Relative trends of the Swiss economy 9 2. Demand and output 10 3. Employment, labour market 12 4. Wage earnings 14 5. Adjustment of real wage earnings in Switzerland and the OECD area 15 6. Trends of prices 16 7. Exports by geographical market 18 8. Foreign trade by commodity group 19 9. Balance ofpayments 21 10. Central Government budget 26 11. General Government accounts 27 12. Structural trend ofpublic finance 28 13. Monetary aggregates 31 14. Nominal and real interest rates in some OECD countries 33 15. Interest rates and exchange rates in some OECD countries 36 16. Output, employment and productivity in the main industrial sectors 40 17. Indicators ofthe energy sector 42 18. Short-term forecasts 45 Statistical annex A. Gross national product (at current prices) 50 B. Gross national product (at 1970 prices) 51 C. Wholesale prices 52 D. Money supply 53 E. Interest rates and capital markets 53 F. Foreign trade by area 54 G. Foreign trade by commodity group 55 H. Balance ofpayments 56 DIAGRAMS 1. Trends ofprices 17 2. Structure ofthe balance ofpayments 20 3. Exchange rates ofthe Swiss franc 23 4. Interestratedifferentialsand exchangeratesvis-à-visGermanyand the rest ofthe world 24 5. Trends ofmain monetary aggregates 32 6. Interest rates: nominal and real 34 7. Indicators ofeconomic activity 44 BASIC STATISTIC OF SWITZERLAND THELAND Area(1 000so.km.) .41.3 Majorcities, 1980estimates Cultivatedland,grasslandand (1 000inhabitants): pastures(1 000sq.km.,in 1972) 20.2 Zurich 369.5 Forest(1 000sq.km.,in 1972) 10.5 Basle 182.1 Geneva 156.5 Bern 145.3 THEPEOPLE Population, 1981 average,estimates Numberofforeignworkers(1 000): (1000) 6429 December1982 647.9 No.ofpersonspersq.km.' 156 Annualaverageincreaseinthe Netannualrateofpopulation numberofforeignworkers increase(per1 000inhabitants, census(1 000): average I§75-1980) -0.1 1962-1972 16.8 Civilianemployment, 1981 (1 000) 3054 1973-1981 -21.1 Percentagedistribution: Agriculture 7.0 Industryandconstruction 39.6 Otheractivities 53.4 PRODUCTION Grossnationalproductin 1981 Valueaddedbyorigin (billionSwissfrancs) 185.6 in 1975(inpercentofGDP * GrowlhofrealGNP, 1974-1981 . atfactorcost):- average(annualrate,percent) 0.4 Agriculture 4.6 Grossfixedinvestmentin 1981 . Industry 29.8 (inpercentofGNP) 24.2 Construction 6.2 Growthofrealinvestment, 1974- Services. 59.4 1981 average(annualrate,percent) -0.1 THEGOVERNMENT1 Publicconsumptionin 1981 CompositionofParliament (inpercentofGNP) 12.5 (percent)in 1979: Revenuein 1981 National Sute (inpercentofGNP) 20.1 Council Council Publicdebtinpercentofcurrent receipts(1981)2 63.0 ChristianDemocrats 22.0 41.4 RadicalDemocrats 25.5 30.4 Socialists 25.5 15.2 CentralDemocratic Union 11.5 8.7 Other 15.5 4.3 Lastelections: 1979 Nextelections: 1983 FOREIGNTRADE Exportsofgoodsandservices Importsofgoodsandservices asapercentage asapercentage ofGNP(average 1974-1981) 34.8 ofGNP(average1974-1981) 34.3 Commodityexports Commodityimports (fob,millionUSdollars, 1981) 26717 (cif,millionUSdollars, 1981) 30603 Percentagedistribution: Percentagedistribution: Byareain 1981: Byareain 1981: ToOECDcountries 72.9 FromOECDcountries 86.1 ToEECcountries 48.7 FromEECcountries 65.6 ToOPECcountries 8.0 FromOPECcountries 3.6 BySITCgroupsin 1981: ByS1TCgroupsin 1981: Food,drinksandtobacco Food,drinksandtobacco (S1TCsections0and 1) 3.3 (SITCsections0and 1) 8.6 Rawmaterials(2,3,4) 1.8 Rawmaterials(2,3,4) 16.0 Semi-finishedgoodsand Semi-finishedgoodsand chemicals(5and6) 40.1 chemicals(5and6) 31.0 Finishedmanufacturedgoods Finishedmanufacturedgoods (7,8,9) 54.9 (7,8,9) 44.4 THECURRENCY Monetaryunit:Swissfranc CurrencyunitperU.S.$, averageofdailyfigures: Year 1982 2.0296 March 1983 2.0628 1. Confederation,CantonsandCommunes. 2. ConsolidateddebtoftheConfederation. AW. Aninternationalcomparisonofcertainbasicstatisticsisgiveninanannextable. ThisSurveyisbasedontheSecretariat'sstudypreparedfor theannualreviewofSwitzerlandbytheEconomicandDevelop¬ mentReview Committeeon 12th April 1983. Afterrevisionsinthelightofdiscussionsduringthereview, final approval ofthe Surveyforpublication was given by the Committeeon 25th April1983. INTRODUCTION Withtheusualtimelagrelativetotheworldeconomy,theSwisseconomyentered intorecession inthesecond halfof 1981 andremained therein 1982. Thedownturn in activitywascausedbythefallinforeigndemand,aggravatedbyasteepappreciationof theSwissfrancinlate 1981-early 1982,andtosomeextentbytherestrictiveimpactof monetary policy on domestic demand. The slowdown in inflation which had been expectedforthebeginningof1982occuredlater,largelybecauseofhigherenergyprices duetothedollar'sappreciation. Thistrend turned round inthesummer,however, and therateofincreaseindomesticpriceseasedappreciablyinthesecondhalf,of1982and the early part of 1983. The downturn in GDP in 1982 (-1.3 per cent) caused a significantfall inemploymentandanincreaseinunemployment,full-timeandpartial, thoughtheunemploymentlevelisstillextremelylowinrelativeterms.Withthemarked decline in imports, the current balance, which had been slightly negative in 1980, showed a surplus equivalent to 3.3 per cent ofGNP in 1982. Economic policy, which had been tightened in 1981 when public finance was brought into equilibrium and central bank money creation was stable, was relaxed somewhatin 1982whenitbecameapparentthattherecessionwascontinuingandthat thepaceofinflationwasslowing.Moneycreationresumedanupwardtrendandinterest rates fell steeply. Despite the re-emergence of a slight deficit of the Confederation budget,publicfinancehadnomorethanamoderatelyexpansionaryimpact.However,a number of specific support measures were taken (extension of the duration of unemployment benefits, release of crisis reserves, demand support programme). The policycourse set for 1983 remains broadly in line with the authorities' cyclical policy objectives: strict control of the rate of money creation and return to medium-term equilibriumofpublicfinance.Nevertheless,althoughthetargetforcentralbankmoney creationisthesameas in 1982 (+ 3 percent), theextremely lowlevel ofinterest rates certainly constitutes a major demand stimulus. On the other hand, a demand support programme of an amount equivalent to 0.8 per cent ofGNP has been adopted. Although the right conditions for recovery are now present in Switzerland, the economic prospects for 1983 remain poor. GDP may be flat owing to the continuing weaknessofdomesticdemandandthemoremoderateprospectsforanupturninforeign demand,whichwillprobablynotoccuruntilthesecondhalfoftheyear. Inflationmight slow appreciably as a result of more moderate trends in domestic prices and also in importprices, notablyforoil. Largely becauseoftheterms-of-tradeimprovement, the tradedeficitmaynarrowbyabout$0.7 billion in 1983andthecurrentaccountsurplus may amount to $3.7 billion or 3% per cent ofGNP. Part I ofthe survey reviews the main developments in the Swiss economy on the domestic and external fronts. PartII is devoted to an analysis of economic policy includingsomeofitsstructural aspects.Thesurveyendswiththeshort-termeconomic prospects and certain policy conclusions. I. RECENT TRENDS Domestic trends Demandandoutput The decline in GDP, which reached 1.3 per cent in volume terms in 1982, was slightly bigger than forecast in last year's Economic Survey of Switzerland (0.8 per cent). This fall in output put an end to a fiveyear phaseofexpansion. It was due to a contractionindomesticdemandandexports,whereasayearagoitwasforecastthatreal private consumption might grow about 0.5 per cent with the increase in purchasing power following the adjustment ofwages for inflation in 1981. In fact, the growth of households'purchasingpowerwasvirtuallycancelledoutbytherateofinflation which continued to be close to that in 1981 and by the fall in employment and rise in unemploymentduringtheyear. Furthermore,thehouseholdsavingsratioprobablyrose between 1981 and 1982. According to the povisional official estimates of December 1982itcould havereached 5.5 percentofdisposableincome (comparedto4.2percent in 1981)1. The decline in private consumption was then estimated at 0.2per cent for 1982. On the basis oftheprovisional quarterly accountsofMarch 1983, consumption would havefallen by 1 percent on average. Theincreasein thesavingsratiotherefore wasprobablybiggerthanexpectedattheendoflastyear.Afteraperiodofrapidgrowth from 1978 to 1981 (3 per cent on average), gross fixed investment fell appreciably in 1982 (down about 3.4percent). Thisdowntrend began in mid-1981 forinvestment in plant and became much more marked in 1982, reaching 8.7 per cent in the second half-year. In construction the decline was quite sharp around the middle ofthe year, mainly because of the rise in mortgage ratés. All told, the decline in domestic demand in 1982 is estimated at 0.7 per cent. Stockholding's contribution was about + Vi per cent, given involuntary stocking of finishedproductsinfirms2. Exportsrespondedtotheslowdown inworlddemandwith a certain time lag; they began to fall back only in the third quarter of 1982 and, even though imports also fell back in the second half of the year, in 1982 as a whole the foreignbalance'scontributiontogrowthwasnegativeat-0.6percentofGDP,whereas in 1981 thecombinationofadeclineinimportsandstronggrowthofexportsresultedin a positive contribution to GDPgrowth of2.7 percent. The fall in exports was a major factorinthedeclineinindustrialproductionwhichreached5 percentinmanufacturing industry in 1982. 1. ThesavingsratioasdefinedintheSwissnationalaccountsexcludeshouseholds'savingsinpension andreservefunds.Thisratiotohouseholds'disposableincomediffersbyabout6percentagepointsfromthat calculated according to the OECD standardized national accounts definitions (see Economic Survey of Switzerland, April 1982, footnote65, page36, and Cahierde Conjoncture, No.2/82 ofthe Swiss Federal StatisticsOffice). 2. Statistical information on stocks is very fragmentary in Switzerland. In the national accounts publications stock movements and statistical errors are put under the same heading. In the OECD standardizedaccounts(oldsystem),thedifferencebetweenthetwoaggregatesissmallbuttherearenomore recentdata than for 1981. Table 1. Relative trends of the Swiss economy Real GDP1 Employment1 Unemployment rate' 1973 1976 1981 1982 1973 1976 1981 1982 1968-73 1974-7<5 1977-81 1982 1967 1973 1976 1981 1967 1973 1976 1981 Switzerland 4.3 -2.5 2.4 -1.3 1.0 -3.1 0.8 -1.4 0 0.4 0.3 0.5 Austria 5.8 2.7 2.6 1.1 0.4 0.3 0.5 -1.0 1.5 1.6 2.0 3.5 Belgium 5.4 2.6 1.5 -0.3 1.0 -0.3 -0.2 -1.7 2.5 4.9 8.6 12.4 Denmark 4.5 2.1 1.3 2.6 0.9 0.1 0.4 0.2 1.4' 4.9 7.4 9.7 Norway 3.8 5.4 3.6 0 2.1 2.6 1.6 0 1.7 1.9 1.8 3.4 Netherlands 5.5 2.6 1.4 -1.6 0.7 -0.2 0.1 -2.5 1.5 3.7 5.4 10.8 Sweden 3.5 2.7 1.0 0.5 0.8 1.8 0.7 0 2.2 1.7 2.1 3.0 Europe 5.1 2.0 2.0 0.4 0.5 -0.1 0 -1.0 Consumer prices1 Borrowing requirement or lending capacity1 Current balance' 1973 1976 1981 1982 1972-73 1979-80 1981-82 1968-73 1974-81 1982 1967 1973 1976 1981 Switzerland 5.1 6.0 3.3 5.7 -1.8 -0.7 -0.2 0.1 3.4 3.5 Austria 4.8 8.4 5.2 5.4 0.8 -3.0 -2.0 -0.7 -3.1 0.5 Belgium 4.5 11.5 5.0 8.7 3.8 -8.2 -12.4 2.8 -1.8 -4.7 Denmark 6.7 11.3 10.9 10.1 8.6 -2.9 -7.9 -1.9 -3.4 -4.5 Norway 9.4 10.1 9.3 11.3 5.1 3.8 5.2 -1.2 -5.1 1.5 Netherlands 9.6 9.5 5.6 6.0 -3.5 -3.6 -5.3 1.3 0.9 4.5 Sweden 5.3 10.0 10.9 8.6 4.2 -3.5 -6.0 0.8 -2.4 -3.0 Europe 5.7 12.5 13.5 10.6 0.5 -0.7 1. Percentagechange atanannualrate. 2. Annualaverage. Unemploymentratesshouldbecomparedwithcautionbecauseofdifferences of definition. 3. 1970-73 average. 4. Asapercentage ofGDP, annualaverage.