General Overview of the Switzerland Economy

General Overview of the Switzerland Economy

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General Overview of the Switzerland Economy

Switzerland’s GDP (Gross Domestic Product) of almost $380 billion (in 2006) places its economy on the 20th position in the world.

Even though the economy is weighted as being not very big, it enjoys one of the largest in the world GDP per capita. It is also characterized as being highly technology advanced and experiencing significant economic growth.

The prosperity of the country mainly stems from its expertise in technology oriented manufacturing, tourism and banking.

Among the most famous sectors of Switzerland are:

  • Chemical industry
  • Pharmaceuticals industry
  • Machinery industry
  • Precision instruments production
  • Watches industry
  • Financial services sector

All of these traits combined with its political stability have led to the establishment of Switzerland’s reputation as one of the safest in economic terms places, which is reflected in the stability of its currency.

Switzerland is a famous destination for offshore capital due to its stability. As a result, the banking and insurance industries employ the biggest percentage of the population and contribute the largest portion of the GDP.

Under the conditions of global risk aversion, capital flows represent the major driver of the economy, which is due to Switzerland’s confidentiality and overall stability.

On the other hand, under the conditions of risk-seeking trade flows represent the main driver of the economy.

A big portion of the trades executed by Switzerland are done with Europe, Germany and France being on the top of the list regarding European partners. Additionally, Switzerland heavily trades with the US.

A variation between a surplus and deficit has been observed on the merchandise trade flow. However, the recent account of the country is marked by a surplus.

Even though Switzerland doesn’t offer high yields, FDI (Foreign Direct Investment) has been largely attracted thanks to the safety of capital, which has greatly contributed to the current account surplus.

Swiss Economic Indicators to Examine

There are several economic indicators forex traders pay special attention to when they consider the investment in the Swiss franc (CHF). They are as follows:

Unemployment Rate Indicator

Every month the unemployment rate is reported. It represents a measure of the total number of people who are looking for a job against the total population of the country.

Money Supply (M3)

The M3 represents a measure of liquidity and is used as an indicator of the monetary base of Switzerland. As such it is closely watched by the Swiss National Bank (SNB). Being an indicator of inflation, rapid growth rates of the monetary base are not observed as a good occurrence.

Gross Domestic Product (GDP) Economic Indicator

In order to get information on the total amount of production and consumption that occurs within Switzerland one should refer to its GDP.

The expenditures by households, businesses, government and net foreign purchases are used in the calculations of GDP. Additionally, in order to transfer the data from current prices into constant-dollars, the GDP deflator should be applied.

The GDP is usually used in order to determine the position of the Swiss economy regarding the business cycle.

If the economy is growing at a fast pace, then inflationary conditions are observed. On the other hand, if the economy is experiencing low or negative growth, then this period is defined as recessionary.

Consumer Price Index (CPI)

The calculations of this index are done on monthly basis and uses retail prices that are charged within the country. Only goods and services that are part of the private consumption aggregate are included in the calculations.

This is in accordance to the generally applied international practices. Excluded from the estimations of the Swiss CPI are such transfer expenditures as social insurance contributions, direct taxation and health insurance premiums. The CPI is generally used as a gauge to inflation levels.

Mergers and Acquisitions (M&A)

The banking and finance industries represent the primary ones in the Swiss economy. An increased number of M&As has been observed in these industries. As a result the value of the Swiss franc has been greatly influenced by the M&A activities.

For example, the need for the Swiss franc will be increased when foreigners want to purchase Swiss banks or insurance companies. Alternatively, the value of the CHF will decrease when Swiss investors want to acquire foreign companies, since they will have to sell the CHF.

Balance of Payments

The international transactions that Switzerland executes with the rest of the world are viewed on its balance of payments.

The balance of trade added to the services portion result in the current account value. The current account of Switzerland has always possessed a strong value. Significant flows may be experienced if changes in the current account are observed.

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