IMD International

Is Switzerland the new Japan?

IMD Professor Reacts: Arturo Bris on the future of Swiss competitiveness

April 14, 2015

Is Switzerland’s economy doomed like Japan’s has been from 1993 to now? Will Swiss competitiveness drop to match Belgium and Thailand?

After the Swiss National Bank's decision to drop its peg to the euro, three features have emerged: a strong currency, negative interest rates and deflation. These were present in Japan from 1985 to 1990 before its major economic woes.

Because of sharp appreciation of the yen in the 1980s, the Bank of Japan implemented massive quantitative easing to thwart foreign pressure on its currency. The effects were devastating: inflation and a real estate bubble, followed by bankruptcies and unemployment. Policymakers continue to fight Japanese economic stagnation today.

In 1993 Japan was second only to the US in the IMD World Competitiveness rankings. It had one the most efficient governments in the world. By 1999, its ranking fell to 24th, where it still stands today.

Despite Japan’s high-quality infrastructure, the government’s efficiency deteriorated because of its indebtedness, pension liability and the economy’s inability to grow.

Is Switzerland going the same route?

Stagnation is unlikely for Switzerland. Contrary to Japan, the Swiss franc conundrum is the result of imbalances in neighbouring economies, especially the euro area. Swiss public finances are currently healthy enough to preserve a path of sustainable growth. Deflation and negative interest rates, which caused the franc’s appreciation, will actually help Swiss competitiveness.

A sudden appreciation of the Swiss franc has happened at least once before. The Swiss economy will continue to be resilient enough to cope with negative economic cycles.

Arturo Bris is Professor of Finance at IMD and directs the IMD World Competitiveness Center. He will be giving a keynote speech at IMD's Orchestrating Winning Performance (OWP) which takes place from 21-26 June 2015.

The 2015 IMD World Competitiveness Yearbook will be released on May 27.

Your next step


Related Faculty

© 2016 IMD International. All Rights Reserved.