OECD: Swiss Economic Performance Strong, but Pursue Changes to Remain So

The Organization for Economic Cooperation and Development (OECD) recently issued a report reviewing the Swiss economy. According to the study, while the Swiss economy has vastly outperformed most of its neighbors, it should wean itself off cheap mortgages and improve labor productivity to remain competitive.

The report also warned against a recent referendum regarding the flow of foreign workers across the Swiss borders and the scarce amount of business investment in the last several years.

The Organization for Economic Cooperation and Development (OECD) recently issued a report reviewing the Swiss economy. According to the study, while the Swiss economy has vastly outperformed most of its neighbors, it should wean itself off cheap mortgages and improve labor productivity to remain competitive.

The report also warned against a recent referendum regarding the flow of foreign workers across the Swiss borders and the scarce amount of business investment in the last several years.

As stated by OECD Chief Economist, Catherine Mann, “The performance of the Swiss economy has been excellent, particularly when compared with neighbouring countries in recent years … At present Switzerland is right to consider itself best in class, but it also has vulnerabilities.” Mann’s comments came during a session with reporters as the report on the state of the Swiss economy released in Bern, Switzerland, on Tuesday. 

The OECD performs economic surveys of Switzerland every two years. The most recent report surfaced, by coincidence, on the same date the Swiss government issued its own report showing that the Swiss economy had stagnated in the third quarter of 2015. 

In its last report in 2013, the OECD highlighted the Swiss property issue. However, the nation’s decision to abandon a policy that checked fluctuations between the Swiss franc and the euro and other changes have magnified the nation’s risk for an economic slide over the last two years.

Indeed, the franc has begun to rise against the euro since they abandoned the checking policy in January of this year. The Swiss National Bank (SNB) introduced negative interest rates in an effort to boost spending, but this also made debt cheaper, causing interest in real estate to skyrocket.  

As reported by Swissinfo.ch, the OECD report went on to note, “The unintended consequences of negative interest rates are becoming more evident. The SNB should evaluate how low interest rates can go and for how long.” Despite this warning, most analysts believe that the SNB will maintain its negative interest rates, or possibly drop them even further, when it performs its next monetary policy assessment later this month. 

Unfortunately, the Swiss housing market has seen the greatest increase in residential property prices of all OECD states this century, only lagging behind Israel. The price results, in large part, from bad loans. This, in turn, could lead to the same problems in Switzerland that preceded the Great Recession of 2008 in America, which started with a housing boom and bust driven by bad mortgages.

The OECD also worries that Switzerland may soon become less competitive. The Swiss working population has become more expensive but less productive compared to neighboring countries, according to the OECD report.

To combat this trend, the OECD recommended that the country encourage female workers into the workplace and give them significant roles within their companies. The OECD also recommends training agricultural workers to start focusing on areas in the Swiss economy that are “more productive”.