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Economy For Members

Why does Switzerland defy economic downturns better than its neighbours?

Helena Bachmann
Helena Bachmann - [email protected]
Why does Switzerland defy economic downturns better than its neighbours?
Several reasons account for the strength of Switzerland's economy. Photo by Fabrice COFFRINI / AFP

Switzerland’s economy has been more robust and resilient to inflationary and recessionary trends than many other nations’. How is the country managing to always stay on top?

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Swiss economy has always been known for its stability, but this has become even more obvious since Russia’s invasion of Ukraine in February 2022 has plunged much of the world into disarray.

Though Switzerland did not totally escape the inflationary trend, its rate has stayed much lower than other countries’: today it stands at 2.6 percent, as compared to 6.9 percent across the eurozone.

Experts attribute this divergence to several factors, including Switzerland’s strong currency and less reliance on Russian energy sources.

READ ALSO: Why Switzerland's inflation rate has stayed low compared to elsewhere

But there are other reasons for Switzerland’s unwavering prosperity as well.

'Resilient and agile’

"We go from crisis to crisis and always find that we have done well," said Heike Scholten, a social scientist studying the attitude of the Swiss population towards the economy. 

“The Swiss economy is resilient and agile.”

The strength of the labour market

Again, unlike its  EU neighbours, where the average unemployment rate is about 6 percent, Switzerland’s is much lower: 2 percent. 

“Thanks to the low unemployment rate, job security is high in Switzerland," she said, pointing out that when people have confidence in the job market, "they allow themselves to make major purchases."

Low unemployment / high employment dynamic fuels economic prosperity because it means that as people earn income, they not only spend more (thus boosting consumption), but they also pay taxes which fill up the government’s coffers.

And when that happens, everyone in Switzerland benefits.

The cantons and their finances profit from the strength of the Swiss economy, as the federal government distributes some of its profits to cantons.

For the first time in 14 years, they have posted handsome profits in their 2022 public accounts — all due to prudent budgeting, exceptionally high tax revenues, and the distribution of large profits by the National Bank, which has given 4 billion francs to the cantons.

All this is very good news for the residents, because it means no social or other spending will be cut — and much of it will be boosted.

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The government’s role

The Swiss are financially-savvy, which bodes well for the economy.

"In comparison with other European countries, the state plays a moderate role in Switzerland," Schulte said. "There is a very great awareness in Switzerland that you cannot spend more than you earn."

In fact, according to the Organisation for Economic Cooperation and Development (OECD), “Switzerland’s public finances rank amongst the best in terms of solidity."

READ ALSO: Why is Switzerland rich?
 

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