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Economy in Brief

Swiss GDP: In The Soup With The Rest Of Europe
by Robert Brusca March 3, 2009

Swiss GDP is taking a hit like the rest of European GDP. Capital formation in Switzerland is being hit especially hard. Switzerland, the graph above shows, has been somewhat resistant to decline in its GDP aggregate until recently when the drop has been very severe. With banking as a key Swiss industry and the economy hit so hard, it is no wonder than Switzerland has been drawn into the vortex of European decline. Switzerland is also a trade-dependent country with exports plus imports topping aggregate GDP in value. Exports are more than 50% of GDP by themselves. With the European economy in a shambles, Swiss exports are being clobbered. Of course Switzerland imports a lot too, and imports have fallen in percentage terms even more than exports for the year, but not for the quarter. The trade situation is a big detractor to Swiss GDP over the quarter as well as over the year due to the relative size of exports in the Swiss economy.

So far Switzerland has weathered the storm of European weakness by pumping up government spending. Public sector spending was up at a 2.9% pace in Q4 and is up by 3.4% Yr/Yr. That helped to drive up domestic demand in the quarter but Yr/Yr domestic demand is still dropping. Europe’s weakness has Switzerland fully in its grasp and the troubles in Swiss banking will pose an added problem for the Swiss authorities, trying to the keep the economy afloat.

Longer term, Switzerland’s banking sector may prove to be even more of a problem. With a global banking crisis in full bloom the rest of the world is pushing hard for transparency. Switzerland has long held a unique position in the global markets with bank secrecy. But banking problems have become so severe that in the European summit of one week ago the Europeans called for strong actions against tax havens. UBS, a major Swiss bank, currently is embroiled in a major fight in the US where it helped US citizens perpetrate tax fraud. The Americans are pushing for the release of the names of about 50,000 American citizens that have accounts at UBS. UBS has offered up a much smaller number of about 250 names. US authorities are pressing UBS and do not seem likely to accept interventions by the Swiss authorities as cover. Although the situation gets complicated because a suit filed in Switzerland is trying to enjoin UBS from releasing these names as it is a crime – a violation of Swiss bank secrecy laws - to do so. The issue and question of bank secrecy and whether it will remain a right is now under a full court press. With so many scandals and allegations of fraud in play the international banking authorities do not want to encounter and black box of secrecy at the end of their chase- as is happening to the US right now. To Switzerland this is a very important issue- but it is also important to other banking sectors where authorities have become increasing suspicious of secrecy anywhere.

Swiss GDP
    Consumption Capital Trade Domestic
  GDP Private Public Formation Exports Imports Demand
% change Q/Q
Q4-08 -1.2% 0.4% 2.9% -12.0% -28.5% -21.3% 7.6%
Q3-08 -0.3% 0.5% 5.7% -7.2% 1.1% -2.9% -2.5%
Q2-08 0.5% 2.5% 3.2% -2.9% 14.0% 14.0% -1.1%
Q1-08 0.5% 0.6% 1.7% 1.1% -2.7% -12.0% -4.2%
% change Yr/Yr
Q4-08 -0.1% 1.0% 3.4% -5.4% -5.4% -6.4% -0.1%
Q3-08 1.3% 1.5% 1.2% -1.3% 4.9% 2.0% -0.6%
Q2-08 2.3% 2.2% -1.8% -2.0% 6.5% 3.4% 0.3%
Q1-08 3.1% 2.2% -2.6% 1.9% 3.7% 0.3% 1.4%
5-Yrs 2.5% 1.7% 0.1% 2.0% 5.5% 3.5% 1.3%
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