OECD Economic Surveys_ Switzerl - OECD

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ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION DE COOPERATION ET DE D E V E I 0 P P E M E N T ECONOMIQUES
BASIC STATISTICS OF SWITZERLAND
THE LAND
Area (1000 sq. km) 41.3 Major cities, 1971 mid-year estimates
Cultivated agricultural land (1 000 inhabitants) :
(1 000 sq. km) 2.7 Zurich 420.9
Grassland and pastures Basic 212.0
(1000 sq. km, in 1952) 19.0 Geneva 173.0
Forest (1 000 sq. km, in 1952) 9.8 Bern 160.3
THE PEOPLE
Population, 1971 mid-year estimates Number of foreign workers subject to
(1000) 6324 control (1000):
No. ofpersons per sq. km 153 April 1972 611.6
Net annua) rale ofpopulation increase August 1972 649.0
(per 1000 inhabitants, 1966-1970) 10.6 Annual average increase in the number
Labour force, 1970 census offoreign workerssubjecttocontrol,
(in per cent of total population) 47.9 August census (1 000):
Percentage distribution: 1956-1964 50.0
Agriculture and forestry 7.6 1965-1972
Industry and construction 48.3
Other 44.1
PRODUCTION
Gross National Product in 1971 Valueaddedbyindustrialoriginin 1967
(billion Swiss francs) 100.8 (inpercent ofGDPatfactorcost):
GrowthofrealGNP, 1968-1971average Agriculture 6.4
(annual rate, per cent) 4.8 Industry 49.6
Gross fixed investment in 1971 Other 44.0
(in per cent ofGNP) 28.3
Growth ofreal fixed investment, 1968-
1971 average (annual rate, rer cent) 7.3
THE GOVERNMENT
Public consumption in 1971 Composition of Parliament
(in per cent of GNP) 11.5 (per cent)
Tax revenue in 1971 National State
(in per cent ofGNP) 26.4 Council Council
Publicdebtinpercentofcurrentreceipts
(1971) 122.5 Conservative Christian
Socialists 22.0 38.5
Radical Democrats 24.5 34.0
Socialists 23.0 9.0
Agrarians 11.5 11.5
Other 19.0 7.0
Last elections: 1971
Next elections: 1975
FOREIGN TRADE
Exportsofgoodsand servicesincluding Importsofgoodsandservicesincluding
factor incomes as a percentage of factor incomes as a percentage of
GNP (average 1966-1971) 36.4 GNP (average 1966-1971) 33.3
Commodity exports (fob million US Commodity imports (cif million US
dollars, 1971) 5740 dollars, 1971) 7223
Percentage distribution (1971): Percentage distribution (1971):
To OECD countries 76.1 From OECD countries 90.0
To developing countries 17.1 From developing countries 7.4
Food, drinks and tobacco Food, drinks and tobacco
(S1TC groups 0 and 1) 6.4 (SITC groups 0 and 1) 12.3
Materials (2, 3, 4) 1.9 Materials (2, 3, 4) 11.4
Semi-finished goods and chemicals Semi-finished goods and chemicals
(5, 6) 37.1 (5, 6) 32.2
Finishedmanufacturedgoods(7,8,9) 54.6 Finishedmanufacturedgoods(7,8,9) 44.1
THE CURRENCY
Monetary unit : Swiss franc CurrencyunitperUSS :
(a) Central rate established in
December 1971 3.84
(b) Since 23rd January 1973 floating;
spot rate on 22nd February 3.27
Note An international comparison ofcertain basicstatistics isgiven in anannextable.
OECD ECONOMIC SURVEYS
A Re H V = 3
R t F É R E W C E ,s
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RETOUR 8U!<i:,i!J *
SWITZERLAND
ORGANISATION FOR ECONOMICCO-OPERATION ANDDEVELOPMENT
The Organisation for Economic Co-operation and
Development (OECD) was set up under a Convention signed
in Paris on 14th December, 1960, which provides that the
OECD shall promote policies designed:
to achieve the highest sustainable economic growth
and employment and a rising standard of living in
Member countries, while maintaining financial sta¬
bility, and thus to contribute to the development of
the world economy;
to contribute to sound economic expansion in
Member as well as non-member countries in the
process of economic development;
to contribute to the expansion of world trade on a
multilateral, non-discriminatory basis in accord¬
ance with international obligations.
The Members of OECD are Australia, Austria,
Belgium, Canada, Denmark, Finland, France, the Federal
Republic ofGermany, Greece, Iceland, Ireland, Italy, Japan,
Luxembourg, the Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, Turkey, the United Kingdom and the
United States.
The Socialist Federal Republic of Yugoslavia is
associated in certain work of the OECD, particularly that
of the Economic and Development Review Committee.
*
* *
The annual review of the Switzerland
bytheOECDEconomicandDevelopmentReviewCommittee
took place on 15th February 1973.
© Organisation for Economic Co-operation and Development, 1973.
Queries concerning permissions or translation rights sould be
addressed to:
Director of Information, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France
CONTENTS
Introduction 5
I Recent trends 6
Increased demand pressures 6
Foreign trade and payments 14
The agreement with the European Communities 18
II Employment, wages and prices 19
Medium-term developments in employment 19
Wages and prices 27
III Economic policies 34
Fiscal policy 34
Monetary policy 38
Capitalcontrolandexchangepolicies 45
Other measures 48
IV Prospects and policyissues 49
The outlook for 1973 49
Policy conclusions
51
Annex: List ofpolicy measures 57
TABLES
Text:
1 Gross national product and expenditure 6
2 Indicators of investment in machinery and equipment 9
3 Indicators of construction activity 10
4 Indicators of private consumption expenditure 11
5 Contribution to the growth of output, 1959-1964/1968-1972 12
6 Foreign trade by commodity groups 16
7 Foreign trade prices 17
8 Balance of payments summary 17
9 Population and labour force 21
10 Employment by sectors 25
11 Recent trends in employment 25
12 Employment and productivity in selected industries 27
13 Wages rates in industry and construction 30
14 Price developments 31
15 Central and local budgets 36
16 Federal finance 37
17 Money supply and quasi-money 43
18 Demand and output 50
Statistical Annex:
A National product and expenditure in current prices 65
B National product and expenditure at 1958 prices 66
C Income and expenditure of households and private non-profit
institutions 67
D Gross domestic product at factor cost by industrial origin 68
E Construction 68
F Interest rates and capital markets 69
G Current government transactions 70
H Foreign trade by area 71
I Foreign trade by commodity groups 72
J Balance of payments 73
DIAGRAMS
1 Indicators of demand pressures 7
2 Internaland external equilibrium 13
3 Foreigntradeandforeigntradeprices 15
4 Participation rates in selected countries 22
5 Employment and productivity 1960-1972 24
6 Wages, prices and demand pressures 29
7 Consumers and wholesale prices 32
8 Monetary liabilities and GNP 39
9 Interest rates 44
10 The exchange rate 46
INTRODUCTION
At the beginning of 1972 there were reasons to expect some abatement of
theinflationarypressures ontheSwisseconomy. Exportdemandhadweaken¬
ed after mid-1970; import prices were nearly stabilized, thanks partly to the
revaluation of the currency; the international monetary crisis of 1971, which
hadledtoamassiveinflowoffunds,hadendedwiththeWashingtonagreement
on the realignment of exchange rates; moreover, the Swiss authorities had
adopted measures to forestall further disruptive capital movements and to
restrainthe growth ofcreditanddomestic demand. In theevent, these expec¬
tations did not materialize. Foreign demand revived in the course of last
yearanddomesticdemandremainedstrongsustainedbyrapidlyrisingincomes
and a sharp expansion ofcredit, particularly to the overstrained construction
sector. Despite considerableproductivitygains which allowed an acceleration
ofthegrowth ofrealGDPin 1972, demand andcostpressures remained strong
and the cost-of-living rose by 7 per cent in the course ofthe year, the highest
rateregisteredinthepost-warperiod. Moreover, intermittentwaves ofcapital
inflows caused by international monetary uncertainties have persisted.
The problem ofinflation is a major concern ofpolicy at present. Strong
expansion is forecast for 1973 in Switzerland's principal export markets, while
no significant autonomous deceleration of the growth of domestic demand is
in sight: its only relatively weak component up till now, business fixed invest¬
ment, may well get a fillip from stronger export demand and may also be
influenced by the medium-term prospects opened by the agreement recently
concluded with the European Communities. With literally full employment
prevailingfor a longtime and continuingrestrictions on the number offoreign
workers, considerable strains on resources are likely to persist. The Federal
authorities, onthebasis ofemergencypowersgrantedbyParliamentinDecem¬
ber, adopted a wide-ranging set of anti-inflationary measures. They also
took further steps to diminish unsettling external influences on the economy,
including the recent decision to suspend intervention ofthe National Bank on
the exchange market.
The acceleration of price increases in the last two years is a common
experience of many Member countries. But the rates of inflation observed
in this period are unusually high for Switzerland, compared with average past
performance. The present Survey examines, in turn, different domestic and
external factors which lie behind this development. Part I reviews recent
trends of demand, real output and current external transactions. Part PI
considers changes in the employment situation over the medium term and
attemptsto analysetheirincidence onwagesandprices. The quasi-permanent
excess demand for labour over the last several years has led to increasingly
importanteffectsonthepricelevelofanyaccelerationofthegrowthofdemand.
Againstthisbackground, demandmanagementpolicyhasacquiredgreater
importance than in the past. But monetary policy has been constrained by
OECD Economic Surveys
external factors much more than in other countries. Part III ofthe Survey,
accordingly, describes the policies applied in the period under review with
particular emphasis on the finks between monetary and capital control mea¬
sures. Part IV discusses short-term prospects and presents certain policy
conclusions.
1 RECENT TRENDS
Increased demandpressures
The moderate slowdown in the growth of demand observed in 1971 was
short-lived. Various indicators pointto anaccelarationofdemandandoutput
in the course of 1972. The pick up in the growth ofexport marketswhich
cameearlierandwasstrongerthangenerallyforeseenandcontinuedbuoyancy
in construction activity seem to have been the most important exogenous
factors behind the acceleration. The precise timing of the turn-around is,
however, difficult to establish. As already pointed out in last year's Survey
Table 1 Gross National Product and Expenditure
Constant previous year's prices1
Percentage changesfrompreviousyear
1967 1968 1969 1970 1971 19722
Private consumption 2.9 3.2 5.2 5.3 5.5 5.7
Public consumption1 1.7 0.8 2.7 2.3 3.7 4.5
Gross investment 0.5 4.2 9.0 9.9 5.1 6.0
Construction -0.6 3.3 6.9 6.1 8.4 7.5
Machinery and equipment 2.2 6.0 7.2 11.7 6.6 4.0
Stocks" (cid:9): 0.1 0.6 (cid:9) -0.6
Total domestic demand 2.0 3.2 5.9 6.2 5.1 5.8
Exports (excluding factor income) 3.6 9.7 13.0 7.2 2.5 4.2
Imports (excluding factor income) 4.6 8.1 12.9 13.7 6.1 6.5
GDP 1.7 3.8 6.1 4.2 3.8 4.8
GNP 1.8 4.2 6.2 4.6 3.9 4.7
Contribution to growth of GNP
Domestic demand 2.0 3.1 5.6 5.9 5.0 5.6
Foreign balance -0.3 0.6 0.3 -1.9 -1.3 -0.8
Factor income 0.1 0.5 0.2 0.6 0.2
1 For data in constant 1958 prices see the Statistical Annex.
2 Preliminary estimates.
3 Including private social insurance.
4 Contribution to growth of GDP,
Sources: La Vie économique and semi-official estimates.
Switzerland
Diagram 1 Indicators of demand pressures
4
. INDUSTRY
2
10000
0
-2 Industrialproduction
Residential1(gapbetween'
(percentdeviations
permits issued and H 5000
fromtrend)
90 ^dwellings constructed)
88 GO
Indexoîcapacity Industrial
utilisation
86 (volumeofnewplans, 40
percentchangesfrom
84 . previousyear) 20
LABOURMARKET
100 0
Ratioofjoboffers
tojobseekers(per
50 centchangesfrom -20
previousyear)
0 -40
-50 ~15
FOREI TRADE
Exportmarkets2
20 (volume,percentchangesfrom
previoushalf-year,annual
15 rates) 10
Ir.por's
10 . (volume,percent
changesfrom
previousyear)
5 . 5
0 L
1969 1970 1971 1972 1969 1970 1971 1972
1 Intownswithmorethan2OOOinhabitants; theseries covers 499 towns until 1970
and 595 from 1971.
2 Seasonally adjusted.
Sources : OECD, Main Economic Indicators; La Vie économique; IWETH, Berichte
dcr Konjunkturforschungsstelle, and Secretariat estimates.
of Switzerland, the absence of a comprehensive set of yearly and quarterly
official national accounts since 1970 makes the analysis of developments in
recent years difficult1.
Official estimates of expenditure trends comparable with those of pre¬
vious years are shown in Table 1 butthe figures must beinterpretedwith some
1 Swiss national accounts areconstructedon thebasis ofdataonincomeandexpend¬
iture trends in the economy. In 1970, the two approaches gave such widely divergent
results (with the incomeestimates yielding a GNP2.8 percenthigherthan theexpenditure
figures) that the Swiss authoritieshavepreferredtopublishonlyofficiatestimatesofexpend¬
ituretrends,whichareconsideredto bemorereliable. See La VieEconomique, September
1971, pp. 458-60, May 1972 pp. 256-59.
OECD Economic Surveys
caution. They suggest that between 1970 and 1971 the growth ofreal GNP
fell below4percentbecause ofamuch smallercontribution ofbusinessinvest¬
ment in equipment and stocks, and because of a deterioration ofthe current
external balance (at constant prices). The slowdown in exports and the
uncertainties surrounding the world economic situation probably affected
investment in certain branches of industry, while supply constraints in other
sectorsalsocontributedtotheslowergrowthofoutput. Withstrongerdomes¬
ticandexportdemand, thegrowth ofGNPisestimated to havereached4Jper
cent in 1972. After five years ofuninterrupted growth at or above what can
be reasonably estimated to be the growth of productive potential, supply
constraints, mainly oflabour, and sectoral imbalances have put an end to the
earlier favourable price performance of Switzerland. The GNP deflator
rose by over 9 per cent in both 1971 and 1972, compared with 5 per cent in
1970 and with an average annual rate of4J per centin the sixties. Consumer
prices also accelerated to reach a record annual rate of 7 per cent in the last
quarter of 1972.
Gross fixed investment at current prices is estimated to have continued
increasing rapidly in 1972, but in real terms the rate ofgrowth slowed down.
Investmentinmachineryandequipmentroseinrealterms byabout6Jpercent
in 1971a substantial deceleration with respect to the exceptionally high
increase of 1970 and current indicators suggest a further deceleration in
1972. It should, nevertheless, be noted that investment in machinery and
equipment continued to increase its share in GNP at constant prices. The
high rate ofgrowth ofthis type ofinvestmentin the years 1968-1970mayhave
reduced, to a certain extent, the scope for further increases in the capital
intensity of production processes in the short run1. Another contributing
factor has been the appearance in the course of 1971 of margins of unused
capacities in certain industries mainly because of a deceleration of exports.
Capacityutilizationrateswerelowerthantheaveragefor 1969-70and overtime
has also been declining. The uncertainties surrounding the business climate
at the end of 1971 may have led enterprises to postpone plannedinvestments2.
Smaller profit margins, due to the combined effect ofthe revaluation and in¬
creased labour costs3, may have also played a role.
The growth ofinvestment in construction rose from 6 per cent in 1970
to 8J per cent in 1971 and is estimated at 1\ per cent in 1972, despite the
1 Between 1967 and 1970productivitygrowth inindustryhas beenveryhigh,thereby
permitting an overall decline in employment (see OECD Economic Survey ofSwitzerland,
February 1972, Table 2 page 8). Investment intentions surveys also show a substantial
increase in labour saving investments, which seem to have accelerated in the most recent
years. A comparison ofthe investment surveys carried out by the Polytechnical Institute
ofZurich shows that while planned investment in equipment and construction aimed at
increasing productive capacity, the majority offirms interviewed expected a decline or no
increaseinemploymentfromtheirplannedinvestmentsin1972as comparedwithanincrease
in 1970 and in 1971.
2 The abovementioned investment survey shows that at the end of 1971 30 per cent
ofthefirms interviewed (especially those in the export sector) had revised their investment
plans downward, comparedwith only8 percentrevisingtheirplansupward.
3 In 1971 and during thefirst ninemonths of1972export prices in Swiss francs rose
by5.7 percent and4.8 percentrespectively.During thesame periodhourlywageearnings
inindustryrosebyover11 percent;productivityincreasedbyonly2and31percent,respec¬
tively, on a gross output basis, an admittedly very uncertain method of measurement.