Switzerland: Analysis of Indicators of Macro Performance - Essay Example

Switzerland: Analysis of indicators of Macro Performance Switzerland a picturesque country, located the heart of Europe is generally known around theworld as a dream destination for tourism purposes. Be it a married couple, a old couple re-living down the memory lane or a gala business conference, Switzerland marks the first entry as a purist destination for the purpose. The form of direct democracy practiced in the country has contributed immensely to its economic and political stability. Swiss bank account is another big attraction amongst the wealthy nationals from across different regions of the world, which certainly has a significant contribution towards the economic growth of the nation. The country's political environment too is characterized by a high degree of decentralization with adequate amount of autonomy and authority delegated to the 26 cantons (Datamonitor, 2007). Macroeconomic indicators happen to be good measure of the economic development of a country as these measures keep track of the life-style of the citizens and the problems faced by them while trying to arrange for the living. Sound macroeconomic indicators help in strengthening the base for a lasting growth of a nation. Some of the macroeconomic indicators over the last couple of years can be summarized for the country as follows; Gross Domestic Product (GDP) happens to be the key driver of macroeconomic conditions in a country. It is calculated as1 'the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports'. Switzerland has seen consistent growth in its GDP over the years, but it appears that is not good enough for it to maintain its leading position amongst similarly placed nations. OECD (2007) in its survey, while lauding the high levels of GDP per capita for Switzerland, also expresses concern over the continuous erosion of Switzerland's relative position over the past decade. The report points out that while proper utilization of labor remains high, the productivity levels has dropped down in comparison to other developed economies like Germany, France, Denmark etc. The growth in real GDP for Switzerland over the period of 2001-2006 is as indicated in table-1 Table 1: Switzerland real GDP (Swiss francs billion), 2001-2006 Table-2: GDP per capita growth in Switzerland compared to major Eurozone countries, 2001-2006 and forecast 2007-11 Year GDP (Swiss francs billion) Growth (%) Country CAGR 2001-2006 CAGR 2007-2011 2001 423 1.1 Germany 0.9 1.0 2002 425 0.4 France 1.4 1.5 2003 424 -0.2 Italy 0.6 0.9 2004 434 2.4 Spain 2.9 4.1 2005 444 2.2 Switzerland 1.0 1.4 2006 457 3.0 Source: Datamonitor, U.S Census Bureau International Database, National Statistical Organization- Switzerland CAGR 1.55% Source: Datamonitor, National Statistical Organization- Switzerland Even during the first two quarters of 2007 the GDP growth remained quite encouraging reaching 0.7% in each period, quarter on quarter (OECD, 2007). What is driving the growth is the acceleration in private consumption with an increase in the availability of more job opportunities and labour incomes. In fact in today's market driven economy what makes a big difference in the economic growth is the purchasing power of the workforce which sets a chain reaction in the form of more purchases, more production, and more contribution to the government in the form of taxes, more investments by the industry and expansion of the overall industrial outlook of the nation. Therefore, Switzerland seems to be preparing adequate ground for inviting more investments which obviously helps the government in shelling out more funds for infrastructure and social welfare sectors. For the year 2007 the GDP growth has been estimated around 2.5%, somewhat lower as compared to the 2006 figures but, in view of the global slowdown in economies this percentage appears good enough. The improvement in economic indicators is also on account of strong external demands after real currency deprivations and robust growth in the neighboring Germany, which happens to be the main trading partner for Switzerland and accounts for about 30% of Swiss exports. The year 2008 appears to be quite challenging though in view of the ripple effect of the global economic turbulence courtesy the US subprime mortgage crisis, and the recent monetary policy tightening. What is more worrying is the earlier projections which kept the high hopes from the year 2008 and professed that the GDP growth for the period 2007-2011 could see a CAGR figure of 1.68%. But in view of the subprime issue these projections might not prove to be realistic. Well, in any case the subprime ripple effect will not be choosy in its impact and almost all economies which have been practicing liberalization and globalization are bound to be affected by the issue. So on a comparative horizon, there might not be big deflections owing to this issue. Monetary policy of the country, which focuses on medium term inflation objectives, appears to be assisting the overall growth of economy and allowing the authorities to adjust the policies under dynamic macroeconomic conditions the world over. OECD (2007) figures also indicate that employment has also been steadily growing in Switzerland with an expansion of labor supply. The labor supply market has become rich with valuable input from the international community as well. With job prospects increasing in the country more immigrant population has started heading towards Switzerland, which surely contributes an appreciable share towards the economic progress of the country. The percentage of immigrant population has consistently grown over the years as globalization allowed more skilled workers to move around in the international job market. Though, from the HR perspective, this might not be a welcome sign as many of the jobs which were being given to the countrymen, are now going to the immigrant community, but it certainly indicates sound economics though. In any case, more industrial activity implies more job opportunities. Switzerland was a late entrant into the club of countries introducing the product market and other structural reforms as compared to EU nations. To some extent this delay has been attributed to the levels of autonomy granted to the cantons, which resulted in limited say to the central government in implementing uniform policies all over the country. But it goes to the credit of the country that Switzerland has now become an equally attractive investment destination for MNCs and other leading names in the manufacturing sector. Economic Strengths and Weaknesses of Switzerland Liberalization and globalization policies have indeed converted the world into a networked community while opening up newer vistas of trade and business all around the globe. It is said that opening up of economies has now tilted the balance in favor of market forces, which is helping the consumer by way of providing quality at reasonable prices. As a result of globalization market forces have started the policies with the role of respective governments becoming limited in determining the nature of imports and exports. Any country having recognised this fact has indeed started reaping the benefits of such policies. Switzerland is one such nation. But the country had some inherent strong points which further provided it a sound base to start off the economic reforms. Some of the strong points could be; As a tourist destination Switzerland has been very much popular amongst international community. The fact that most of the Swiss can speak several languages with English being one of them, helped the country in reaching out to the international community and gaining more acceptability amongst the international companies and organizations. Banking Industry has been another strong point of Switzerland, with its contribution of about 15% to country's GDP. The Swiss bank secrecy laws have attracted depositors from many countries around the world. Though such laws have come under fire a number of times in the past from NGOs and human rights activists for providing safe heaven to the autocrats and other money launderers, but it is creditworthy that the country has successfully faced such accusations and tried to improve its standing on the world scene. In fact the second half of 1990's proved quite challenging for the banking industry when charges were leveled against it for funding the German war efforts during the Nazi era and holding dormant the pre-1945 bank accounts for many of the victims and survivors of the Nazi genocide. But industry seems to be tackling the past with promises for the future Having the headquarters of WTO in Geneva is also an asset for the country as it results in making Geneva a business capital for the world community. Multinational Companies continue to consider Switzerland as a global base. Lower levels of taxes and a relatively stable currency also attracts the investments into the country Some of the weakness of Switzerland could be; Increasing emphasis on the outsourcing of jobs, which is resulting in taking away a large number of jobs from Swiss nationals to foreign locations. This is being done by many companies to gain cost advantages in manufacturing and services sectors, but the disgruntlement expressed by some of the employees unions to the encouragement provided by the Swiss government to such tendencies appears to be heading to a difficult situation for the job market. Some sluggishness in growth figures in recent years may result in bigger slowdown for the country's economy in the long run, if the global adverse triggers start impacting world economies. References: 1. Datamonitor (2007). Switzerland Country Profile. Datamonitor Europe 2. InvestorWords.com. GDP-Definition. Available online at http://www.investorwords.com/2153/GDP.html (April 6, 2008) 3. OECD (2007). Economic Survey of Switzerland. OECD publications Read More