Rock-solid expansion

Switzerland has reason to cheer. According to the State secretariat for Economic Affairs (SECO), the Swiss economy has expanded by 2.7 per cent in 2006 - the fastest rate in six years.

Reports from the International Monetary Fund have also confirmed that "growth in Switzerland is balanced, inflation is low and economy is strong".

Last year the Swiss economy maintained the solid pace of expansion for the third year in a row.

As in the last two years, economic growth exceeded the average of the past decade - real GDP grew by 2.7 per cent, after 2.4 per cent in 2004 and 1.9 per cent in 2005.

Switzerland lies in the heart of an important economic area composed of southern Germany, northern Italy and the French region around Lyon. The country, which experienced modest growth till the 1990s, has improved its economic condition remarkably in the last few years.

The Swiss economic structure changed in the last four decades from an industrial to a service-based economy. Services were responsible for 73 per cent of the total GDP last year.

Banking and insurance, trade and hospitality are the three largest groups in the service sector, whereas in the industrial sector, watches and precision instruments, metal processing, machinery and chemicals are dominant industries.

Switzerland's economy is also dependent for its wealth on foreign trade, which represents a high proportion of its GDP.

Swiss imports and exports continued to grow last year, benefiting from the ongoing economic upswing. Exports grew by 12.9 per cent, reaching 177.2 billion francs (about Dh539.43 billion). Imports increased by 11 per cent to 16.5 billion francs (about Dh50.23 billion).

Surplus trade balance

According to Jetro Geneve Monthly Report, "Switzerland's 2006 trade balance ended up with a record surplus of 11.65 billion francs (about Dh35.46 billion), up by nearly half over the previous year. The result was mainly due to high exports in the pharmaceutical and chemical industry."

As a result of the marked increase in exports, Swiss chocolate manufacturers made record sales of 1.53 billion francs (about Dh4.65 billion) last year. Neighbouring Germany remains the main export market for Swiss chocolates, ahead of France, Britain and the US.

The Geneva-based World Economic Forum put Switzerland at the top of its global competitiveness survey of 125 countries in 2006. It praised the Swiss capacity for innovation and its sophisticated business culture. The US ranked sixth and the UK tenth.

According to Swiss Business Hub Dubai, the economic upswing in Switzerland is driven by domestic as well as foreign demand.

Swiss exports of goods and services have benefited from a buoyant world economy. Business investment picked up strongly last year, whereas private consumption continued to remain a solid growth pillar.

The latter is supported by the labour market situation: employment in Switzerland rose strongly in the second half of last year, and the unemployment rate has fallen steadily, standing at three per cent in March 2007.

One of the main features of 2006 was wide-scale growth with an increase in production in nearly all sectors of the economy. Though the financial sector has remained the dominant growth driver, a strengthening dynamism in industry and services was observed, particularly in the chemical and pharmaceutical industry.

This has been reflected in the strongly growing exports to the European Union countries, which account for about two-thirds of the total exports, especially to Germany.

Outside Europe, the most positive impulses came from the US, Japan, Hong Kong and China. Due to robust domestic demand, Swiss imports of goods and services also recorded strong growth last year.

State Secretary Jean-Daniel Gerber said in a media interview that Switzerland's relationship with the EU is essential.

"About 70 per cent of Swiss goods are exported to EU member states, making the bilateral agreements with the 25-member trading block crucial. The implementation, renewal and extension of existing agreements with the EU in areas such as research and freedom of movement of people, therefore, need to be carried out."

Hans Hauser, the Swiss Consul General in Dubai, says that in 2006 the idea of introducing the Cassis de Dijon-Principle unilaterally was discussed extensively in the government.

The principle states that any product produced in an EU country can be sold in another EU country without any restrictions concerning product or product standards. Switzerland would introduce the principle for all EU countries in order to enhance the competition in the domestic market.

According to Alois Bischofberger, Chief Economist at the Credit Suisse: "Capital investment in equipment is one of the sectors that have been revived most strongly. A combination of low interest rates and positive corporate earnings is prompting companies to invest in new machinery and more efficient processes.

The mechanical engineering and precision instrument industries are benefiting in particular. These sectors are experiencing strong demands for high-added-value medical and optical equipment."

Hauser reiterates that technical fields have been doing well in Switzerland. "Swiss technology is now being used in diabetic care to pump insulin.

Swiss micro motors are also being used in the Mars rovers."

In the last two years, financial services (bank and insurance) have also been the growth engine of the Swiss economy. Real output of the financial sector has increased by 13.5 per cent in 2005 and 11.2 per cent in 2006. While financial services account for about 15 per cent of the Swiss GDP, their contribution to GDP growth in 2005 and 2006 have been roughly 50 per cent.

Aymo Brunetti, Chief Economist of the State Secretariat for Economic Affairs (SECO), said the Swiss economy was now beginning to have a positive impact on the employment market. According to a survey carried out by the Handelszeitung business newspaper, Swiss firms would create thousands of new jobs in 2007.

Studies have shown that pharmaceutical giant Novartis is planning to recruit 300 people in the country, and 80 new posts are to be created at chemicals company Lonza.

Zurich Financial Services is also intending to add 110 jobs. The country's largest employer, supermarket Migros, is also employing, as are other blue-chip companies such as Adecco, Nestle and Givaudan.

SECO says that 11,200 jobs in the country are currently vacant, 20 per cent more than last year. According to Union Bank of Switzerland and Credit Suisse, the best performing areas are chemicals and pharmaceuticals, banks, precision instruments, electronics and telecommunications.

Confidence among Swiss consumers in January 2007 was highest in the last six years, says SECO. The high rate of employment certainly contributed to the good public mood.

SECO announced that the quarterly consumer sentiment index rose to plus 17 points for the first three months of 2007, up from plus 13 points in the final quarter of last year.

The economic growth has also given a boost to the tourism industry. "In the past when the world economy was weak, people were looking for budget options when they travelled.

But now people are switching over to quality destinations and are ready to pay a higher price. Switzerland is not considered a cheap destination, but we have seen big changes in the last few years... this has helped address the country's expensive image in a positive way," said Jurg Schmid, head of Switzerland Tourism.

Figures released by SECO indicate that the number of overnight stays by foreign tourists, from January to August 2006, rose by 6.2 per cent to 14.3 million. As a result of the buoyant economy, the Swiss are also booking more holidays abroad. Travel agents are experiencing soaring sales and a rosy outlook for 2007.

The Swiss National Bank's monetary policy has been successful in keeping inflation low, thereby maintaining price stability. In doing so, the bank creates a favourable environment allowing the economy to make full use of its production potential.

But, as Bischofgerger of Credit Suisse says, the job is not all done. "Progress does not excuse us from the task of ensuring the right conditions for future growth are in place... I think there is a great deal of work to be done if we are to realise the full potential of the Swiss domestic market.

Finally, further progress is required on the education and training front. We must continue to strive to achieve excellent standards in this area if we are to remain competitive over the long term." n