This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.The economic situation and policies of France were reviewed by the Committee on 7 October 2013. The draft report was then revised in the light of the discussions and given final approval as the agreed report of the whole Committee on 23 October 2013.The Secretariat’s draft report was prepared for the Committee by Petar Vujanovic and Richard Dutu under the supervision of Peter Jarrett. Research assistance was provided by Patrizio Sicari.The previous Survey of Switzerland was issued in January 2012.

Switzerland’s economy has performed well in recent years. At the same time, it has faced an extremely strong currency, in large part resulting from safe-haven capital inflows. This has precipitated two years of mild deflation and posed a threat to activity in the Swiss economy. Accordingly, policy interest rates have been reduced essentially to zero. The minimum exchange rate (a cap on the value of the Swiss franc against the euro), adopted two years ago, has resulted in a very large expansion of the central bank’s balance sheet. House prices have been increasing strongly, especially in a number of hotspots, driven by low interest rates as well as supply constraints and robust demand, especially from recent immigrants. Despite macro-prudential tightening measures, the housing market has shown few signs of cooling. The minimum exchange rate remains in place as inflation is still zero, there are still risks of renewed safe-haven flows, and there is still some slack in the economy. The fiscal balance remains soundboth at the federal level and in most cantons, thanks to healthy economic growth and the debt-brake rule, which has restrained expenditure growth through the cycle.

Switzerland is one of the rare western European countries that has managed to grow over the past few years, thanks primarily to solid domestic demand (Panel A). Household consumption growth has been supported by strong immigration, sustained consumer confidence and rising real wages (Panels B and C). Dynamic demography and historically low interest rates are boosting housing construction. Yet the unemployment rate has been edging up since mid-2011 (Panel D). Strong population growth, averaging around 1% per annum in recent years, has meant that in per capita terms, growth has been less impressive.

Switzerland has a well performing economy that has relied on utilising its human and physical capital resources extensively in order to maintain a high standard of living. Moreover, with a strong budgetary position and low public debt, it is well positioned to meet the challenge of achieving sustainable long-run growth. The outward-looking focus of the economy brings dynamism. However, labour productivity growth has lagged that of peer countries over recent decades and the level of multifactor productivity is well inside the international frontier. The lack of competition in the domestic sector remains a considerable barrier for growth, while trade intensity could be improved. Innovation and entrepreneurship are also areas in which Switzerland has a mixed record. While there is a high level of spending on research and development by both business and government and of patent and trademark activity by Swiss-based firms, entrepreneurship is lagging, with low numbers of start-ups and significant administrative barriers to business formation. Policies need to be refined to smooth the way for small, high-growth enterprises to bring to market new products and services, and to create jobs. In the long term Switzerland is expected to continue to rely on a growing population to drive growth, most of which will take the form of immigrants. While, the labour market integration for immigrants in Switzerland is highly favourable by international comparison, measures need to be reinforced to fully utilise the entire pool of available labour. In particular, this means putting in place measures that improve the educational performance of all recent migrants and their children, as well improving opportunities for a greater role for women.

Swiss women are now as well educated as their male counterparts. However, progress remains to be made in the job market where both the supply and price of female labour are below that of men. While the participation rate for women is high and rising, it is offset by a heavy incidence of part-time work, reflecting both personal preferences and factors that limit their labour supply. The lack and high cost of childcare options for parents, as well as burdensome marginal income tax rates for second earners, create disincentives to work more. A falling but persistent net (i.e. unexplained) wage gap of about 7% in favour of men, coupled with under-representation of women as managers and entrepreneurs, further reduce the incentive for women to take full advantage of their high levels of human capital. Priority should be given to removing those barriers by increasing public spending on childcare and out-of-school-hours care at the cantonal and municipal levels. Existing regulations regarding childcare provision should also be investigated to see whether a broader range of price and quality childcare options is feasible. The implicit tax penalty for married women should also be removed, as the Federal Council is currently considering. More flexibility in working arrangements could further alleviate women’s cost of reconciling work and family life. For instance, facilitating flexi-time, annualised hours, job-sharing, part-time and telework options for both women and men, and creating paternity and/or consecutive, take-it-or-leave-it parental leave could facilitate transition in and out of the labour market. Increasing competition in product markets should help reduce the wage gap by replacing old habits with the hunt for talent regardless of gender. Finally, a corporate governance code in favour of a more equal representation of women in leadership positions, and setting ambitious quantitative targets for women on boards combined with the Comply or Explain practise, or quotas, should help remove the so-called glass ceiling.