Switzerland 1974.

78 Pages·1974·4.844 MB·English

by  OECD

OECD
ECONOMIC SURVEYS
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SWITZERLAND
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MARCH 1974
V E s '
A B c #aWc STATISTICS OF SWITZERLAND
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Ar ( ©Wri; 41 Majorcities, 1972mid-yearestimates
Cul va , ssandand (1000inhabitants):
(1 sq.km 20.2 Zurich 416.1
For sq.km,in1972) 10.5 Basle 207.7
Geneva 171.6
Bern 159.1
THE PEOPLE
Population,1972average,estimates Numberofforeignworkerssubjectto
(1000) 6385 control(1000):
No.ofpersonspersq.km 155 April1973 577.1
Netannualrateofpopulationincrease August 1973 620.9
(perI000inhabitants,1967-1971) 9.9 Annual average increaseinthenumber
Labourforce, 1972(1000) 3078 offoreign workerssubjecttocontrol,
Percentagedistribution,secretariatestim¬ Augustcensus(1000):
ates: 1956-1964 50.0
Agricultureandforestry 7.1 1965-1973 -11.1
Industryandconstruction 46.8
Other 46.1
PRODUCTION
GrossNationalProductin1972 Valueadded by industrial origin in 1967
(billionSwissfrancs) 115.2 (inpercentofGDPatfactorcost):
GrowthofrealGNP,1969-1972average Agriculture 6.4
(annualrate,percent) 5.1 Industrv 49.6
Grossfixedinvestmentin1972 Other 44.0
(inpercentofGNP) 29.3
Growth ofreal fixed investment, 1969-
1972 average (annual rate, per cent) 7.6
THE GOVERNMENT
Publicconsumotionin 1972 CompositionofParliament
(inpercentofGNP) 11.3 (percent)
Taxrevenuein 1971 National State
(inpercentofGNP) 17.9 Council Council
Publicdebtinpercentofcurrentreceipts
ConservativeChristian
(1971) 38.2 Socialists 22.0 38.5
RadicalDemocrats 24.5 34.0
Socialists 23.0 9.0
Agrarians 11.5 11.5
Other 19.0 7.0
lastelections: 1971
Nextelections: 1975
FOREIGN TRADE
Exportsofgoodsandservicesincludng Importsofgoodsandservicesincluding
factorincomesasapercentageofGNP factorincomesasapercentageofGNP
(average 1967-1972) 36.7 (average 1967-1972) 33.9
Commodityexports Commodityimports
(fob,million USdollars. 1972) 6862 (cit>million USdollars, 1972) 8479
Percentag?distribution(1972): Percentagedistribution(1972):
ToOECDcountries 77.5 FromOECDcountries 90.7
Todevelopingcountries 16.6 Fromdevelopingcountries 6.9
Food,drinksandtobacco Food,drinksandtobacco
(SITCgroups0and 1) 5.3 (SITCgroups0and 1) 12.0
Materials(2,3,4) 2.0 Materials(2,3,4) 10.2
Semi-finishedgoodsandchemicals Semi-finishedgoodsandchemicals
(5,6) 39.0 (5,6) 32.1
Finishedmanufacturedgoods(7,8,9) 53.7 Finishedmanufacturedgoods(7,8,9) 45.7
THE CURRENCY
Monetaryunit:Swissfranc CurrencyunitperUSS:
(a) Centralrateestablishedin
December 1971 3.84
(b) Since23rdJanuary1973floating
spot rate on 7th February 1974 3.2335
Note Aninternationalcomparisonofcertainbasicstatisticsisgiveninanannextable.
OECD ECONOMIC SURVEYS
SWITZERLAND
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and
Development (OECD) was set up under a Convention
signed in Paris on 14th December, I960, which provides
that the OECD shallpromotepolicies 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 ofeconomic 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, New Zealand, Norway, Por¬
tugal, Spain, Sweden, Switzerland, Turkey, the United
Kingdomandthe UnitedStates.
The Socialist Federal Republic of Yugoslavia is
associated in certain work of the OECD, particularly that
oftheEconomicandDevelopmentReview Committee.
*
* *
The annual review ofSwitzerland
bytheOECDEconomicandDevelopmentReviewCommittee
tookplace on 7th February 1974.
The present Survey has been updatedsubsequently.
© Organisation forEconomicCo-operation and Development, 1974.
Queries concerning permissions or translation rights should be
addressed to :
DirectorofInformation,OECD
2.rueAndre-Pascal,75775PARIS CEDEX16,France
CONTENTS
Introduction
I Recent trends 6
The stabilization programme 6
The slowdown of domestic demand 10
Foreign trade and payments 17
The acceleration of inflation 22
II The problem of imported inflation 24
Price effects 25
Demand effects 29
Liquidity effects 31
Conclusions 33
III The growth of the public sector 34
IV Prospects and policy issues 47
The present stance of policy 47
The outlook for 1974 48
Conclusions 51
Annex A note on personal income taxation in Switzerland 55
TABLES
Text
1 Money supply and quasi-money 8
2 Central and local budgets 11
3 Gross national product and expenditure 12
4 Indicators of private consumption expenditure 15
5 Indicators of construction activity 16
6 Indicators of investment in machinery and equipment 16
7 Real GDP growth, employment and productivity 17
8 Recent trends in employment 18
9 Foreign trade by commodity groups 20
10 Balance of payments summary 21
11 Wage rates in industry and construction 22
12 Contribution of import prices to the increase in domestic prices 28
13 Consumer prices, export prices and unit labour costs 29
14 Contribution of exports to the growth of demand and GNP 31
15 Public expenditure developments in selected countries, 1961-71 35
16 Functional breakdown of public sector expenditure in selected
countries, 1969 36
17 Structure of expenditure 37
18 Share of taxation in GDP in selected countries 39
19 Trend changes in "Primary" income and expenditure, 1955 to 1969 42
20 Revenue and expenditure of the federal government and local
authorities 43
21 Structure of taxation, 1971 44
22 Demand and output 49
Annex
a Federal personal income tax 56
b Local personal income tax, 1960-1965 57
c Local personal income tax, 1965-1972 57
Statistical Annex: 59
A National product and expenditure in current prices 61
B National product and expenditure at 1958 prices 62
C Income and expenditure of households and private non-profit
institutions 63
D Gross domestic product at factor cost by industrial origin 64
E Construction 64
F Interest rates and capital markets 65
G Current government transactions 66
H Foreign trade by area 67
I Foreign trade by commodity groups 68
J Balance of payments 69
K Public expenditure by function 70
L Public expenditure by function, as per cent of GDP 72
DIAGRAMS
1 Interest rates 9
2 Indicators of demand pressures 13
3 The exchange rate 21
4 Price developments 23
5 Import prices by major groups of commodities 26
6 Exchange rate changes and import prices 27
7 Money supply and GNP 32
8 Taxation on the corporate and household sector 40
9 Public sector deficit 45
10 The demand impact of the public sector 46
INTRODUCTION
The problem of inflation has remained the major concern of policy
in 1973. The comprehensive set of anti-inflationary measures adopted by
the Federal authorities at the beginning of the year on the basis of emergency
powers granted by Parliament in December 1972 and the decision to allow
the exchange rate to float, have, with time, begun to produce their effects
on domestic demand. But the revival of foreign demand has added
pressures to an already strained supply situation and the growth of output
has continued to exceed what can reasonably be considered its medium-
term potential. Under these circumstances, despite the adoption of price
surveillance measures, progress on the price front could only be moderate,
even in normal conditions. But international developments were, yet again,
far from normal in 1973. The generalized aggravation of inflation in the
OECD area, the sharp increases of commodity prices and the most recent
events in the oil market have more than offset the modest progress made
at home, and the year-to-year increase in the cost of living index exceeded
10 per cent in the last quarter of 1973.
The present outlook for 1974 does not leave much room for optimism.
Given the high degree of dependence of the Swiss economy upon external
developments, it is extremely difficult to hazard any precise forecast in
view of the uncertainties surrounding economic prospects in OECD Member
countries in general. Domestically, the stance of policy remains restrictive
and a further slowdown in economic expansion could be expected on this
account. The direct and indirect impact of the oil crisis is likely to further
dampen the growth of output. On the basis of the decisions taken at the
time of writing (January 1974) the probable reduction in oil supplies should
not cause great disruptions to Switzerland's industrial production. The
greatest impact on the growth of output should come, with a lag, from a
weaker external demand and the deflationary effect on domestic real income
and demand of the higher oil prices. The resulting reduction in demand
pressures is not an unwelcome feature, but under present circumstances an
improved balance between demand and supply can hardly be accompanied
by improvements on the price front. Imported inflation through increased
import prices is likely to remain a serious problem over which the authorities
will have little, if any, control. The balance of payments implications of
the increase in oil prices are not likely to pose for Switzerland an un-
surmountable problem, at least in the short run. The strong resilience
shown so far by the current external account and the traditional attractive¬
ness of Switzerland's financial market should help in weathering the storm.
Part I of the present Survey reviews recent trends in demand and
output, in the light of the stabilization measures taken in 1973. The problem
of imported inflation and some of its policy implications are examined in
Part II. Medium-term developments in public finance are discussed in
OECDEconomicSurveys
Part III from the points of view of both their impact on inflation and the
allocation of resources, leading to some conclusions concerning the limits
of fiscal policy and likely future problems in this area. Part IV discusses
short-term prospects and proposes certain policy conclusions.
I RECENT TRENDS
The stabilization programme
In describing the outlook for 1973, last year's Survey noted that
"although external developments will continue greatly to influence Switzer¬
land'seconomic situation, imposing an important constraint on the effective¬
ness of domestic policy action, events in 1973 are likely to be shaped more
than in the past by policy decisions". On 20th December, 1972, in fact,
Parliament had approved, on an emergency basis, a set of anti-inflationary
measures which covered a much wider front than similar action taken in
the past1. They included monetary and fiscal measures, regulation of
capital market issues, comprehensive controls on building and, for the
first time since the war, provisions for price and income surveillance. An
important feature was the replacement of earlier partial or voluntary
arrangements, which in the past had not always proved to be fully effective,
by statutory controls, particularly important in the area of credit and
monetary policy.
The main concern being to moderate the growth of demand and the
price increase, major reliance has been put on the use of monetary policy,
capital controls and exchange policies. The National Bank decided in
January 1973 to fix a ceiling limiting credit expansion until the end of
July 1973 to 6 per cent above the level authorized under the "gentlemen's
agreement" with the banks, which had expired at the end of July 1972.
Since credit (and credit commitments) had increased rapidly after the ex¬
piration of the agreement, the Central Bank allowed the bank to adjust
gradually their position, but in April requested them to deposit in a blocked
account an amount equivalent to one-third of the credit granted in excess
of the ceiling2. For the period 1st August, 1973 - 31st July, 1974, credit
expansion has again been limited to an amount equivalent to 6 per cent of
the credit authorized at the end of July 1972, thereby implying a further
deceleration in bank credit. The Central Bank has also taken steps to
maintain banks' free reserves (i.e. deposits with the Central Bank) at a
1 These are described in detail in last year's Survey and especially in its Annex, pa¬
ges 57-61. As required by the Constitution, the relevant decrees were submitted to a refe¬
rendum on 2nd December, 1973 and were approved by a large majority ofthe population
andtheCantons.
2 The requirement was raised to 100 per cent for the amount exceeding the ceiling
as of 31st July, 1973. It was, however, set at 50 per cent in the case oflong-termcredit
institutions.
Switzerland
low level and to discourage them from borrowing from abroad. The existing
marginal reserve requirements on liabilities to residents and non-residents
were maintained1; an average reserve requirement on bank Habilites
to non-residents was also imposed at the end of March2. More¬
over, the National Bank increased its discount rate from 3f per cent to
4i per cent on 22nd January and tightened further the measures adopted
in the summer of 1971 and 1972 aimed at controlling the net inflow of
funds from abroad3. Finally, a ceiling of SF 3.4 billion was set by the
Central Bank on new issues of securities by Swiss residents (compared
with total issues amounting to SF 4 billion in 1972) and the National Bank,
in agreement with the institutions concerned, established guidelines for non-
bank financial institutions inviting them not to change the structure of
their assets.
These measures proved effective in containing the expansion of both
bank credit and money supply which has progressively decelerated in 1973.
Bank liquidity was also tightened considerably and bank free reserves, which
had reached the staggeringlevel of SF 13 billion in August 1971, progressive¬
ly fell to about SF 5 billion in October 1972, and have since been oscillating
around this level. In 1973 the banks have thus been obliged to make
increasing recourse to the facilities of the Central Bank in order to meet
their end-of-months liquidity needs. Short-term interest rates have been
rising steadily since the end of 1972, especially after the increase in euro¬
dollar rates, affecting with a lag longer-term rates. The increase, however,
has remained moderate when compared with that registered in other
countries and in view of the high rate of inflation. This is partly because
1 Theincremental reserverequirements on liabilities to residents(20percent onsight
deposits and 2.5 per cent on savings deposits) were established on 31st March, 1972. In
July 1972, theywereraised to28 percentand 3.5 percent, respectively;therewasnorequi¬
rement on time deposits. From October 1973 the rates have been as follows: 28 per cent
on sight deposits, 2.5 percent on savings deposits and 10 per cent on time deposits ofone
year's maturity or less. The marginal reserve requirements on liabilities to non-residents
were established in August 1971 and since then have been modified several times. From
March 1973 therequirementshavebeensetat56percentondepositsofbanksandonsight
depositsofnon-banks;at42percentontimedepositsofnon-banksand7percentonsavings
deposits. The requirements have been applied on liabilities in Swiss francs and, in prin¬
ciple, on liabilities denominated in foreign currencies (an increase in liabilitiesdenominated
inforeign currencies is subject to the requirement only when it is not accompanied by an
equivalentincreaseinassets).
2 Theaveragereserverequirementswere set asfollows:
in Swissfrancs inforeigncurrencies
liabilitiestobanks 3% 1 \%
sightliabilitiestonon-banks 3% 1 \%
timedeposits 2% 1 %
Sincetheend ofOctober 1973 asurchargeof25 percent hasalso been applied.
3 Besides the reserve requirementmentioned above, these included the obligation for
bankstoplacewithresidentsatleast60percent(increasedto65percentin March 1973)of
the authorized lending (bonds and notes) to non-residents, the ban on the acquisition by
foreigners ofSwiss capital assets (includingreal estate), thepriorapproval by the National
Bank of foreign borrowing by Swiss residents, the obligation for banks to balance their
foreigncurrency position daily,and a 2percentquarterlychargeon theincreaseofdeposits
held byforeigners, over and above thelevel outstanding as of30thJune, 1972. The latter
two measures were suspended in October 1973, and the ban on the acquisition of Swiss
capital assets in January 1974.
Table 1 Money Supply and Quasi-Money1
Percentagechangesoverpreviousperiod
Sep. 73 ]972 1973
1969 1970 1971 1972
Sep. 72
Ql Q2 Q3 Q4 Ql Q2 Q3
Moneysupply(Ml) 6.9 7.3 39.5 4.2 4.2 -0.3 0.4 -0.9 5.1 -5.1 3.9 0.6
Quasi-money* 18.4 9.0 15.7 11.4 11.9 -0.3 4.0 3.1 4.2 2.9 -0.2 4.5
Total monetaryliabilities(M3) 14.3 8.5 23.5 8.8 9.2 -0.4 2.6 1.7 4.5 0.1 1.2 3.1
Changes dueto3:
Netforeignassets 1.2 4.4 10.5 3.4 -0.3 1.1 1.5 0.4 0.4 -1.5 1.9 1.0
Domesticcredit 13.6 10.6 11.3 11.7 8.5 0.8 3.7 2.1 4.9 0.1 1.1 2.2
Otherassets(net) -0.5 -6.5 1.7 -6.3 1.0 -2.3 -2.6 -0.8 -0.8 1.5 -1.8 -0.1
Memorandumitem:
Bankcredittoresidents*
(percentagechangeover
previousyear) 13.0 7.2 11.1 8.2 7.5 8.5 10.2 11.1 9.9 7.5 8.2
1 Moneysupplystatisticscoverthewholebankingsectorandthepostalcheckingsystem.
2 Includingtimeandsavingsdeposits.
3 Inpercentofthemonetaryliabilitiesoutstandingattheendofthepreviousperiod.
4 178banksonlywithtotalassetsexceedingSOmillionsofSwissfrancs.
Sources :NationalBankofSwitzerlandandBanqueNationaleSuisse,BulletinMensuel.