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Quick Facts
Population:
GDP (PPP):
- $324.6 billion
- 1.6% growth
- 2.7% 5-year compound annual growth
- $42,536 per capita
Unemployment:
Inflation (CPI):
FDI Inflow:
Switzerland’s economic freedom score is 81.1, making its economy the 6th freest in the 2010 Index. Its score has improved by 1.7 points since last year. Switzerland is ranked 2nd out of 43 countries in the Europe region, and its overall score is much higher than the world average.
The Swiss economy is diversified and modern, with high levels of prosperity and institutional strengths that include strong protection of property rights and an efficient legal framework. Openness to global trade and investment has enabled Switzerland to become one of the world’s most competitive and flexible economies. Despite some stress in the financial system, Switzerland has emerged from the global economic turmoil relatively unscathed.
With an efficient and stable business climate, Switzerland has created a vibrant entrepreneurial environment. The average tariff rate is low, and commercial operations are aided by a flexible labor market and not overly burdened by regulation. Inflationary pressures are under control. Foreign investment is welcome, and screening applies to only a few sectors. Investors have access to adequate sources of credit. The judicial system, independent of political interference and free from corruption, enforces contracts reliably.
Switzerland, one of the world’s richest and most investment-friendly destinations, is a multicultural society with four official languages. It has a long tradition of openness to the world yet jealously guards its independence and neutrality. The seat of the ill-fated League of Nations, Switzerland joined the United Nations only in 2002. Two referenda on membership in the European Union have failed by wide margins, and membership in the European Economic Area was rejected by referendum in 1992. Swiss–EU relations are based instead on an extensive range of bilateral technical agreements that are considered quite successful. Switzerland is an international banking center, but its economy also relies heavily on precision manufacturing, metals, pharmaceuticals, chemicals, and electronics.
The overall freedom to start, operate, and close a business is well protected under Switzerland’s regulatory environment. Starting a business takes 20 days, compared to the world average of 35 days. Obtaining a business license takes less than the world average of 18 procedures and 218 days. Bankruptcy proceedings are relatively easy.
Switzerland’s weighted average tariff rate was 0 percent in 2008. However, prohibitive agriculture tariffs and quotas block trade in some products altogether, and services market access barriers, import taxes, restrictive biotechnology regulations, and export subsidies add to the cost of trade. Ten points were deducted from Switzerland’s trade freedom score to account for non-tariff barriers.
Taxation is more burdensome at the cantonal levels than it is at the federal level. The top federal income tax rate is 11.5 percent, and the combined top income tax rate (federal and sub-federal) can be as high as 41.5 percent, though it is generally much lower. The top combined corporate tax rate can be as high as 24 percent. Other taxes include a value-added tax (VAT), a tax on securities and insurance premiums, and cantonal-level property taxes. In the most recent year, overall tax revenue as a percentage of GDP was 29.7 percent.
Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 32.2 percent of GDP. Direct government participation in the economy has been confined to such public services as post offices, railways, and defense.
Inflation has been very low, averaging 1.9 percent between 2006 and 2008. Government measures influence the prices of agricultural goods and pharmaceutical products, and the government influences prices through regulation, subsidies, and state-owned utilities. Ten points were deducted from Switzerland’s monetary freedom score to account for policies that distort domestic prices.
Foreign investment receives national treatment, and most sectors are open to private investment. Project screening applies in a few sectors. Joint stock companies must have a majority of resident Swiss nationals on their boards. Foreign investments are subject to review by the Competition Commission if the value of the investing firm’s sales reaches certain levels. The investment code and its implementation are generally transparent and efficient, but this varies widely across cantons. Residents and non-residents may hold foreign exchange accounts. There are no restrictions on repatriation of profits or current transfers. Real estate purchases by non-residents must be approved by the canton in which the property is located.
Switzerland is a leading financial center with highly developed and well-regulated institutions. Foreign and domestic investors have adequate access to capital and a wide variety of credit instruments. Mergers and acquisitions have reduced the number of banks, but there are still over 300 banks operating in the country. The two largest banking groups account for around 60 percent of the system’s total assets. Credit is allocated on market terms. Insurance is well developed, and the state-owned postal service offers a variety of financial services. Capital markets are strong, and the stock exchange is one of Europe’s largest. The global financial crisis hit the country’s two major banks (UBS and Credit Suisse) hard. The government bailed out UBS in 2008 with asset purchases and a capital injection but sold off its stake in 2009.
The judiciary is independent, and contracts are secure. Switzerland has one of the world’s best protection regimes for both foreign and domestic holders of intellectual property.
Corruption is perceived as almost nonexistent. Switzerland ranks 5th out of 179 countries in Transparency International’s Corruption Perceptions Index for 2008. Corruption is not pervasive in any area of the economy, and enforcement against domestic corruption is effective. In 2007, the Federal Council approved the U.N. Convention Against Corruption, but ratification has not yet taken place.
Switzerland’s labor regulations are relatively flexible. The non-salary cost of employing a worker is moderate, but dismissing an employee can be costly.