Switzerland is known to have one of the world’s strongest economies, with a very high per capita GDP. That’s insane because the country has a population of a little more than 8.5 million, and its modern market economy can easily compete with nations that have hundreds of millions of residents.
If you’re wondering what it is that makes the Swiss economy so strong, you’re in the right place. I’ll tell you about all the different factors that influence the Swiss economy and that manage it to keep it so strong and competitive, but in an easy-to-digest way that won’t make your head hurt after just a couple of paragraphs.
Table of Contents
Switzerland Macroeconomic Indicators
Macroeconomic indicators are data that analysts use in assessments of the economic circumstances of any country, region, or even a city. Gross Domestic Product (GDP) is widely accepted as the main macroeconomic indicator, but many others are considered when determining the strength of a country’s economy.
Some other macroeconomic indicators that are often used are the inflation rate, unemployment rate, total government debt, interest rates, consumer price index, and others. Here’s a basic overview of Switzerland’s main macroeconomic indicators:
- GDP: $801 Billion
- Annual GDP per capita: $87,340
- Annual GDP growth rate: 0.7%
- Unemployment Rate: 2%
- Inflation Rate: 2.6%
- Government Debt to GDP: 41.4% (of GDP)
- Average Wage: 6,712 CHF/month
- CPI: 106 points
- Interest Rate: 1.5%
To put things in perspective, Macrotrends lists the average GDP per capita at $12,234 and an average unemployment rate of 6.18%. Switzerland might not be in the top 20 countries in the world just by the annual GDP, but that’s expected because it is a relatively small country, at least compared to the US, China, Japan, and other giants that are leaders in the statistics. But it has one of the highest per capita GDPs, which is precisely what makes it such a strong economy.
Major Industries & Key Economic Sectors
Three main sectors must be considered when discussing the economy of Switzerland: agriculture, services, and industry. The services sector is the most developed of them all, accounting for 72% of Switzerland’s total GDP. The industry sector accounts for 27% of the total GDP of Switzerland, while the small agricultural sector contributes the remaining 1%.
The services sector includes banking and finances, which is mainly why it accounts for such a large percentage of the national GDP. Tourism, retail trade, real estate, insurance, education, and health care are also in this category, but banking is without a doubt the pillar of the service sector and the main reason for the country’s international competitiveness regarding the economy.
The largest banks in Switzerland are the Swiss National Bank which prints the Swiss franc and UBS. Credit Suisse was also on this list up until a few months ago; the bank that managed to glide through the global financial crisis of the early 2000s without any major consequences nearly collapsed in early 2023, and UBS decided to acquire it to prevent a financial meltdown.
Apart from the financial sector, the manufacturing industry is also important for the Swiss national GDP. In total, it accounts for 25.6% of the total GDP, and it is also the leading export industry in the country. It includes the pharmaceutical industry, which is very important for the Swiss economy.
Trade & Relations
Switzerland is not a member nation of the European Union, but the EU is still its largest and most important trade partner. Approximately 6.6% of the EU’s total trade is done with Switzerland, making Switzerland the fourth largest trading partner of the European Union. Switzerland also has very strong trade relations with the United States, its second-largest trade partner.
Some of the largest Swiss exports are machinery, chemical-pharmaceutical items, watches, and textiles. Switzerland is also one of the world’s largest exporters of gold, with a roughly 20.9% share in the global gold export market, the value of which is $63.8 billion. Switzerland also exports gems, precious metals, organic chemicals, medical apparatus, and many other items.
Switzerland’s trade partners are so important to the country that during the financial crises of the mid-2010s, there were calls for the SNB to devaluate the Swiss Franc. The country’s currency was no longer tied to the Euro, and the Swiss National Bank has a zero interest rate policy in place, in order to protect the local economy.
But, with the sovereign debt crises unfolding in the EU countries, which are Switzerland’s largest trade partners, the stability of the Swiss franc made its exports less competitive. This ultimately resulted in a 2% fall in GDP growth.
Labor & Employment
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Switzerland has a very highly skilled labor force, and it tops the list when it comes to the skill and education of its workers. The country also has an impressively low unemployment rate and some fairly liberal labor laws. There’s also a large presence of worker’s unions in Switzerland, which help put pressure on the lawmakers to account for the needs of workers with any new and existing laws.
Most labor laws are regulated on a federal level, but there are also a number of collective agreements, standard contracts, and other federal ordinances that play an important role. Generally speaking, the labor laws in Switzerland are more in favor of the employer than is the case in most other countries.
Because many aspects of the labor sector are individually regulated by the cantons, Switzerland doesn’t have a nationwide minimum wage. It varies from one canton to another, so it’s 23 CHF per hour in Geneva but 23.9 CHF per hour in Zurich (city).
Even though there’s no set minimum wage, there are stipulations in the countless collective agreements that indicate a minimum monthly payout of 2,200-4,200 Swiss francs for unskilled workers, and 2,800-5,300 Swiss francs for highly skilled employees.
Business & Investment Climate
It’s no secret that Switzerland is very welcoming to international investors, with its countless investment banks, wealth management centers, and even bank branches that deal exclusively with foreign customers. International trade and all investment treaties are regulated by the Swiss government on a federal level, and the country has an overwhelmingly positive investment climate.
However, the cantons and large municipalities have the freedom to shape their own investment policies, as well as offer incentives that would attract foreign investors. Also, it’s mostly the economic and political stability of Switzerland that attracts so many foreign investors. The low tax rates also play a key role here; Switzerland has very low corporate taxes, which is why so many foreign companies are headquartered in the Alpine country.
Switzerland’s Economic Challenges
Switzerland has a very strong economy but it’s certainly not without its challenges. Perhaps the main issues regarding the economy in Switzerland concern the increasingly high cost of living in the country. Both the housing prices and the vacancy rates of apartments and homes throughout Switzerland are rising, which is the leading economic challenge.
Additionally, the Swiss market is not very favorable to foreign products. Most consumers prefer to shop domestically, both to support the local economy and because they are wary of quality foreign products.
On top of that, the Swiss government does everything in its power to protect the local farmers and the agricultural sector, which often results in high tariffs on foreign agricultural goods, usually meat and dairy. This makes it very difficult for imported goods to compete with locally produced goods.
Certain economic challenges are also associated with Switzerland’s monetary policy, with the consequence of inflated prices of real estate, diminished purchasing power, and even damaged assets. But despite these challenges, Switzerland continues to have one of the strongest economies in the world.
Switzerland’s Economic Outlook
Switzerland’s economic outlook is highly influenced by events and crises that are out of the country’s control. The world events of 2020 and 2021 have had a significant impact on the country’s economy, with the pandemic still raising certain challenges.
On top of that, the Russia-Ukraine war has also severely impacted the economy of Switzerland, limiting its export trade options as well as foreign investments. It’s not a secret that many Russian oligarchs had money in the Swiss banks, and the recent events were a significant blow.
Nonetheless, the economy of Switzerland has proved to be very resilient, managing to survive global crises and global pandemics without catastrophic consequences. It’s expected that Switzerland’s economy will continue to grow in the following years, although the projected growth rate is lower than what was expected a few years ago.
The current projections are that the economy will grow by 1.1% in 2023 and 1.5% in 2024. It’s also expected that the unemployment rate will rise from 2% in 2023 to 2.3% in 2024. Again, these estimates are far from a catastrophe and are mostly a result of outside factors, which are challenges that every economy in the world has to deal with eventually.
Frequently Asked Questions
Is the economy in Switzerland good?
Yes, the economy in Switzerland is overwhelmingly good. It’s one of the strongest economies in the world and the country is in the list of top ten countries with the highest per capita GDP in the world.
What factors contribute to the strong economy of Switzerland?
Political stability, a skilled workforce, economic diversity, and a very strong local currency (the Swiss franc) are the leading factors that contribute to Switzerland’s strong economy.
