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What’s on the horizon for the Swiss economy in 2016?

IMD and the leading Swiss French-speaking newspaper Le Temps kicked off the year with a conference on the challenges that lie ahead for Switzerland’s economy in 2016
January 2016

Edouard Bugnion, Professor at EPFL, opened the event by highlighting the rapid digital revolution that the world and Switzerland are currently experiencing and how it will impact many industries. According to Bugnion, new business models and large global players will emerge.

Everything will be connected

“Business is IT: all companies should adopt this paradigm. All objects will be connected – Will the Swiss Army knife be connected to the “cloud” one day? Will Switzerland seize the opportunity to position itself as a global center for data storage in the cloud? Will the country be able to maintain its advanced infrastructure and legal system?” he questioned.

Andrea Maechler, member of the Swiss National Bank’s Governing Board, said that from the monetary policy angle, Switzerland’s banking officials are cautiously optimistic. She predicted that the world economy will grow by over 3% in 2016 and will be influenced by a number of factors: the recovery of the euro area, weak growth in emerging markets and the slowdown of the Chinese economy. Maechler said she expects growth of 1.5 % in Switzerland in 2016, a slight improvement over 2015.

Switzerland remains resilient

She pointed out a number of Switzerland’s recent accomplishments in the face of difficult economic conditions: The country’s GDP is now 7 % higher than before the financial crisis. In 2015 the volume of exports increased despite pressure caused by the strong Swiss franc. Companies quickly adapted to the stronger currency by lowering their margins and increasing their efficiency. The Swiss economy has been remarkably resilient by international comparison, she said. The country fared better in 2015 in the areas of GDP and unemployment than was predicted at the beginning of the year, for example. In addition, Switzerland has managed to keep the risk of de-industrialization relatively low; the manufacturing industry still generates around 20 % of GDP, above the OECD average. Price stability is also ensured in the medium term. However some sectors are coping better than others: the chemical industry has made gains but the watch, electronics and machinery sectors are struggling.

Sovereign wealth fund quashed

While many prominent economists have proposed that Switzerland might be able to better avoid some of its economic vulnerability with a sovereign wealth fund like Norway’s, Maechler said the SNB is not in favor. “Our reserves are the result of our monetary policy, and are not based on natural resources. We need to maintain our flexibility in this area,” she said.

Speakers from Swiss banks such as UBS, Credit Suisse and Vontobel, discussed Switzerland’s economic performance and overall strategy. They highlighted the ability of Swiss firms to stay the course despite a lot of pressure on margins and concluded that the “premium” product and service strategy remains the best option for Switzerland. But, why not consider production on a larger scale for these high value-added products, many of them proposed.

Disruptors risk disruption

A round table on disruption focused on how much people have been changing their consumption habits in recent years. “Will the disruptors be disrupted? Certainly if they don’t continue to innovate,” was a constant refrain. Other ideas floated during the debate were: the labor market is being transformed; jobs disappear but other professions are emerging; teleworking should be increased and the environment should be a stronger concern.

The last word went to George Kern, CEO of IWC Schaffhausen, who shared his knowledge of the luxury industry. “The Apple Watch does not replace a luxury watch. We sell passion,” he said. “Success also depends on how well we communicate and tell the same story in different ways.”

Stay tuned for next year’s joint event by IMD and Le Temps and keep informed on what each year’s major trends will be.