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Macroeconomy of Switzerland

Anggi Gayatri Setiawan

Ayu Sandra Desi
Dewi Sartika
Dwicky Syafroza Putra
Shinta Putri Permata Dewi




1. Real GDP and GDP per capita of Switzerland

Switzerland is one of the most stable economies in the world, that

fast recovering from the global recession that happen in 1998. But, it
doesn’t mean that Switzerland never got problem in its economic. The
economic activity of Switzerland is really dependent on its foreign
investment and trade. It’s because Switzerland is lack of natural
resources. So, Switzerland always importing it’s requirements from other
countries. Switzerland is a small country that using industry and trade as
the keys sector of its economic livelihood.

Its policy of long-term monetary security and bank secrecy has

made Switzerland a safe haven for investors, creating an economy that is
increasingly dependent on a steady tide of foreign investment. Because of
the country's small size and high labor specialization, industry and trade
are the keys to Switzerland's economic livelihood. Switzerland has
achieved one of the highest per capita incomes in the world with low
unemployment rates and a low budget deficit. The service sector has also
come to play a significant economic role.

As we know that GDP means all of the final goods and services
produced in a country in a given period. But, if we want to know about the
economic growth of a country, we should know the GDP per capita of its
country, not just the GDP only.

Even Switzerland is a country that really dependent in the import of

resources from another country, cause of its lack of resources. As we
know that in the World War II, there is a crisis global that impact to every
nation in the world. And Switzerland is one of the country that get the
impact of it’s crisis. The lack of resources, make Switzerland decline of its
economic and social environmental.





After calculating the GDP per capita of Switzerland, we can analysis

the economic growth of this country by comparing the GDP and the GDP
per capita. Looking for the GDP of Switzerland in 2005, we can see that
the GDP is about 463,799 billion dollar. This is a big amount of GDP in
Switzerland for this year. But, the economic showed signs of weakness in
this year. It’s proved by the declined in exports, and weak equipment in
investment. A continuous rise in the oil prices is such a shock in
Switzerland’s economic too. So, although the GDP in this year increased,
the economic growth of Switzerland was in a weak condition.

In the second half of the year, the domestic economy in Europe

began to show clear signs of a recovery. Underpinned by the weak euro,
exports boosted investments considerably. Owing to this improvement,

the situation in the labor market relaxed slightly. For the first time in four
years, unemployment decreased across the entire euro area.1

In the third quarter, real GDP was up by 2.3%. Switzerland National

Bank was still forecasting that real GDP will growth about 1% in 2005.
Both investment and private consumption had already picked up before
September. It was assumed that export and construction would provide
the major booster, while consumption continued to suffer from high oil
prices and the persistence of unemployment. But, there is slight increase
in real wage (about 0.8 %). So, the wages rose despite the difficult
economic situation, following by an increased in GDP per capita. But,
consumption and equipment investment was strong in the end of year.
GDP growth rose more than 2% in the end of this year. The economic
recovery expected in 2006 would bring with it an improvement in the
labor market, and thus also stronger growth in consumption in the
medium term. Full utilization of production capacity was likely to be
achieved towards the end of 2006.


At the beginning of 2006, the outlook of Switzerland’s economy

was bright. But, the recovery that did not embrace all sectors make
Switzerland still little fragile at the beginning of the year. First of all, the
equipment of investment was advancing only moderately as compared
with production. Second, there was rarely any improvement in the labor
market and unemployment. By this situation, consumer confidence was
low, and the rate of growth in consumption was below the long term

In the first quarter, exports to the European Union grew up, with
the main accent on equipment goods, thereby supporting manufacturing.
This strength was maintained in the second quarter, which was being
Germany as the main trading partner. Besides exports, imports of goods
also played an important role to awakening the economic of Switzerland
in this year. Alongside the healthy business activity recorded in
manufacturing, equipment investment also grew strongly in the first half
of the year. This development was supported by favorable conditions,
including low interest rates and an auspicious growth outlook.

The economic of Switzerland as whole was great in this year. It

showed by increased in GDP from 463,799 to 490,545. Besides, the
increasing of exporting goods and services from 6.4% to 9.6% makes the
trade sector of Switzerland renascent. Although GDP was clearly growing,
the situation in the labor market remained unclear for some time. The
rate of unemployment was declined from 3.6% in January to 3.1% in
December while the rate of job seekers declined to 4.7%.

An increasing demand in the labor market was happen in this year
too. This increasing demand of labor in the market make increased in
salary. It means that the income of the peoples was rising too, by looking
for the GDP per capita that increased to 35783 in this year. The
consumption also rose by the increased in income per capita of the
peoples. In the first of three quarters, the real wage of Switzerland rose by

At the end of 2006, growth prospects for the next year remained
good. At its press conference on 14 December 2006, the Switzerland
National Bank forecast GDP growth of about 2% for 2007. Although the
Swiss National Bank expected the expansion in exports to slow gradually
in line with the economies of our main trading partners, both equipment
investment and employment were likely to grow substantially. By
contrast, a restrained growth path was forecast for investment in
construction and continued strong growth in consumption, which was
likely to support economic growth. 2


In 2007, the Switzerland economy was in good shape and GDP

growth remained at a high level as the forecast made in 2006. The main
growth was included the strong global economy and the weakness of the
Switzerland franc to the Euro. The domestic demand was increased,
supported by advantageous financing conditions, as well as developments
in employment and income. Exporting goods and services increased

whereas the importing decreased, due to increasing demand for
investment goods and consumer goods in Europe and South Asia.

In the first quarter of 2007, GDP growth amounted to 2.8%, due to

an increasing demand for investment goods and consumer goods
exported to Europe and South East Asia. In the second half of the year,
the growth in exports decreased. This downturn affected service which
was strongly than the goods sector.

The second quarter of 2007imports of goods and services began to

grow sharply. The capacity utilization was above the long term average,
due to the equipment investment that rising continuously. This advanced
was encouraged by advantageous conditions, such as low interest rates,
the good economic outlook and rising corporate profits.

The strong economy of Switzerland affected the labor market that

improving continuously. In the first three quarters of 2007, 82,000 new
jobs were created. The opening of Switzerland labor market to European
Union nationals on the basis of the agreement on the free movement of
persons has enabled employers to compensate part of the shortage of
labor. The fact that approximately 40% of jobs created were taken up by
non Switzerland employees is a partial reflection of this phenomenon. 3

The rate of unemployment declined through the year, dropping from 3%

in January to 2.6% in December. The salary also rose following the
increased in jobs opening. The rate of job seekers also continue falling,
dropping from 4.6% in January to 4% in December.

A diminishing in the equipment investment and exports will

probably have a negative impact on GDP. The annual growth in import
prices climbed from 3.2% to 3.5% between January and July. During the
course of the following quarters, most components of domestic demand
as well as exports would considerably growth. The healthy economy

would stimulate the labor market and decline the number of
unemployment. Consequently, the Switzerland National Bank continued to
forecast GDP growth of about 2% for 2007.


Global economic growth weakened considerably in 2008. In the

first half of the year, there was a decline in economic growth that mainly
caused by the fall in added value in the financial sector. In fact, this
declining affected the financial market proved by a substantial decrease
in the volume of securities transactions and also in the income from bank

In the second half of the year, a financial crisis continued weighing

heavily on the financial sector. Exports goods and services were sharply
affected by the weakening in European and Asian demand, as well as the
appreciation in the Switzerland franc. Exporting machines was declined
substantially in this year. Imports of consumption goods remained strong
during the first half of the year, before weakening in the second half.

Despite the uncertainty on the economic outlook, the labor market

remained lively into summer 2008. The manufacturing and services
sectors both contributed to the creation of new jobs in Switzerland. But, in
the second half of the year, the weakening in the economic activity was
increasingly affected in the labor of market. At the end of the year, the
employment outlook signaled to zero or even negative growth in the
volume of employment, affected by the loss of momentum in the labor
market, financial intermediaries, insurance companies, and also services
providers and the public sectors.

The Switzerland wage index fails to take account of changes in the
composition of employment, mobility between sectors or bonus
payments. This shortcoming can be avoided by using the figures on salary
payments derived from the national accounts, which make it possible to
better evaluate movements in salaries. In 2008, these figures increased in
real terms by an estimated 3.6%. If one takes into account the 2.8%
growth in employment, real salaries rose by 0.8%. This increase is
attributable, on the one hand, to the recruitment of highly qualified staff
and, on the other, to the excellent state of the labor market up until the
first quarter, which allowed many employees to switch jobs and thereby
obtain better-paid positions.4

At the end of 2008, the global economy fell into deep recession
after having grown by 3% in the previous year. The main cause of the
economic crisis was the severe disruption of the global financial system
following the collapse of the US investment bank, Lehman Brothers in
September 2008. This led to a drastic reduction in inventories and
cutbacks in private consumption, particularity in the field of consumer
durables. Manufacturing and world trade were particularity heavily
affected by the decline in demand, with the latter additionally hampered
by the difficulties in export financing.

The US and European economies were particularity affected by the

downturn, and both slipped into recession in the second half of the year.
This was due in part to the price of oil, which had risen sharply in the first
half-year. Economic growth came to a halt in the second half of 2008, and
unemployment rose for the first time in five years. Two of the most
seriously affected areas were the financial sector and the export industry.
Owing to rising incomes, household consumption, meanwhile, continued
to underpin economic activity.


In Switzerland, the recession lasted until mid 2009. As a dependent

country of an importing goods and services from another country,
Switzerland surely got the bad impact of this financial crisis. The export
industry as the key sector in Switzerland was the hardest hit, bearing of
the seriously sank in global trade. It showed by a sharpest decline in
GDP, that dropped until -1.5%. It was the sharpest decline since 1975 in
Switzerland. Exports of goods and services also fell sharply in this year.
But, in the second half of the year, the revival of global demand led to a
recovery in Switzerland exports by making a fiscal policy that aided
exports of Switzerland.

By contrast, the economy was supported by private consumption

and residential construction, with the latter benefiting from both the low
level of interest rates and the economic stimulus measures implemented
by the authorities. In the second half of the year, the nascent recovery in
the world economy led to a slight improvement. Real GDP rose once
again, but could not offset the fall in output experienced at the start of
the year. In addition, unemployment increased markedly up to the end of
the year.5

In the second quarter of 2009, Swiss good exports were 18% below
the level in period one year earlier. Comparing in a year to year before,
this is the sharpest decline ever recorded. Exports of services also fell
sharply, in particular due to the fall in receipts from commodity trading
and banking services.

In the third quarter, GDP began to rise again. The revival of global
demand led to a recovery in Swiss exports. Fiscal stimulus program
introduced by other countries, in particular, aided exports of goods. As
regards exports of services, income from bank commissions increased for
the first time since early 2007 due to rising assets prices. 6

The decline in economic activity also resulted in lower imports of

goods and services. The recession also impact on the labor market.
However, the decline in GDP following by an increased in unemployment
was something worried. The hotel and restaurant industry and trade also
experienced substantial lay-offs. But, in the end of 2009, many
companies, particularity in manufacturing, introduced short-time working.
From January to May, the number of people affected by short-time
working rose from 5,800 to 60,000. By resorting to short time working,
many companies were able to maintain staff numbers, and this provides
some explanation for the relatively robust employment figures. The
wages rose sharply despite the difficult economic situation.

2. CPI and Unemployment Rate

2.1 CPI (Consumer Price Index) of Switzerland

CPI. An indicator of inflation that measures the change in the cost

of a fixed basket of product and services, including housing, electricity,
food, and transportation1. The CPI is published monthly. also called cost-
of-living index2. When we talk about the rate of inflation in
Switzerland, this often refers to the rate of inflation based on the
consumer price index, or CPI for short

The SNB equates price stability with a rise in the national consumer
price index (CPI) of less than 2% . Because of that, it takes into
consideration the fact that not every price increase is necessarily
inflationary, and that inflation cannot be measured accurately.
Measurement problems arise, for example, when the quality of goods and
services improves. Such changes are not fully taken into account in the


2 Samuelson. (2007). Economics. Amerika Serikat: Pearson.

CPI calculation; as a result, measured inflation tends to be slightly

The economy of swiss is include in the stabil condition of economy.

We can see in this chart, that is the snb (swiss national bank) standart of
CPI , that is 2% inflation. The crisis economy ever happened in swiss when
2008, and it ever get the highest point at 3.1 %. It is really over the target
from SNB. At that year, the interest rate of bank is decreases then people
withdraw their money, automaticly the money in society is increase , the
price of goods and services is incresing too, then the inflation happened.

The National Bank pursues a monetary policy serving the interests

of the country as a whole. It must ensure price stability, while taking due
account of economic developments. Monetary policy affects production
and prices with a considerable time lag. Consequently, monetary policy is
based on inflation forecasts rather than current inflation.

3 Samuelson, Paul A. dan William Nordhaus. (2005). Economics: Eighteenth Edition. New York: McGraw-Hill.


Inflationary pressures increase in phases of economic overheating
and decrease when production capacity is not fully utilised. Because of it,
the National Bank must restore price stability by tightening monetary
policy in the first case and easing it in the latter. Consequently, monetary
policy that is has relation to price stability has a smoothing effect on
aggregate demand.

The situation is more complex when prices rise owing to shocks

that increase firms’ costs and cause them to curb production. A
continuous rise in the oil price is an example of such a shock. In these
circumstances, monetary policy must, on the one hand, make sure that
the higher production costs do not give rise to an inflation.

The SNB does not react mechanically to its inflation forecast. It also
takes account of the general economic situation in its monetary policy
decisions. If inflation temporarily exceeds the 2% ceiling as a result of
one-off factors, such as a sudden surge in oil prices or strong exchange
rate fluctuations, monetary policy does not necessarily need to be


Period inflation

march 2010 1.400 %

march 2009 -0.424 %

march 2008 2.630 %

march 2007 0.173 %

march 2006 1.029 %

march 2005 1.441 %

march 2004 -0.097 %

march 2003 1.339 %

march 2002 0.510 %

march 2001 0.976 %

Swiss ever get the deflation during 2008 until 2009 because it


has been a global economic resession. Because the CPI (willingness of
consumer to buy a product in certain price of a period) is decrease, the
deflation happened and the money value of swiss has decreased too.
And the lowest point of this deflation is July 2009 in -1.2 point. But, in
the 2010 the CPI of swiss back to normal again and the inflation

The inflation rate in Switzerland was 1.40 percent in March of

2010. Inflation rate refers to a general rise in prices measured against a
standard level of purchasing power. The most well known measures of
Inflation are the CPI which measures consumer prices. In 2009,
aggregate supply prices were strongly influenced by a base effect
related to oil prices. Having reached a maximum of USD 134 per barrel
in July 2008, the crude oil price plummeted to an average of USD 41 by
December 2008. In 2009, it increased again.

Annual inflation, as measured by the CPI, fell from 0.1% in

January to –1.2% in July. It then began growing again, reaching 0.3% in
December. Over the year as a whole, the CPI fell by 0.5%; compared to
2008 this represented a 2.9% decrease, of which 2.1 percentage points
were directly attributable to the movements in oil prices.7

The rate of inflation, excluding oil, fell from 1.5% in January to

0.1% in December. This was due, first, to lower import prices resulting
from the appreciation of the Swiss franc against major currencies such
as the US dollar, the pound sterling and the yen. Second, it was also


because the slowdown in economic activity helped to curb inflation.8

Economic activity to recover gradually in 2010 Supply prices

affected by base effects Slight decline in consumer prices

2.2 Unemployment Rate

Swiss economy have orientation on industrial sector, because of

poor natural resources, the relatively small area of territory, and the
lack of total population (approximately 7,500,000 people). Therefore,
Switzerland imports raw materials larger, which then after going
through processing, exported as a product with high quality. Famous
export products are hours, chocolate and cheese, but in fact the result
of the export of mechanical industry, electronics and chemicals to reach
more than half of Swiss export amount. 9

Swiss economic policy based on free trade, with no import

quotas, where the only exception is for agricultural products - but this
time start tightening slowly reduced the amount of quota, as the impact
of the agreement by the European Union (EU). Traditionally, economic
and trade relations or many-oriented Swiss made with neighboring
countries in Europe, especially Germany, France and Italy.

But now the Swiss, including through the facilities of EFTA

(European Free trade Association), is also active in negotiations with
countries that have greater market access for repair and Swiss

8 Ibid.

companies to the world market.

Scarcity of natural resources forced swiss to focus its production

on high quality speciality product so The employee whom hired have to
get the high specialization. In the service sector, switzerland is famous
for hospitality systems, banking and insurance.

The main level of its economy environment is microtechnology,

hitech, biotechnology, and also the drugs(medicine). Banking and
assurance are the biggest industry which gave effect to economical
income of switzerland. Swiss banking sector contributed 12.5% to GDP
whereas in the U.S and UK each only accounted for 5,1% and 6,7%.10

Unemployment in Switzerland remained at an 11-year high in

November as the impact of recession in the jobs market to economic
growth. Swiss unemployment was stable from October at 4.1 percent
when adjusted for seasonal factors, holding at the highest level since
April 1998.11

Swiss unemployment reached its highest point in over a decade

last month, although compared to most other countries things are still
looking good. Because the global resession happened.

Although the geographic area covering only 0.028% of the total

land area of the world, but Switzerland is recognized as one of the best
financial center in the world. Swiss success was driven by its strategic
location in the middle of Europe, its political stability, currency
exchange rates are high, low inflation rates, tightening of laws


protecting the confidentiality of its banking and financial services center
of a regular and advanced.

Two of its biggest banks, namely UBS and Credit Suisse, controls
two-thirds of the Swiss banking sector. Banking absorb about 3% of the
total Swiss workforce.


Overall, the economy of swiss was stable, include the

unemployment rate, it never have significant differences from one year
to another year. It is in average about 3%. Swiss unemployment
reached its highest point in over a decade last month, although
compared to most other countries things are still looking good .

The rate of unemployment rise from 2.8% at the beginning of

2009 to 4.2% at the end of the year. The number of unemployed people
was up by about 50,000 to 165,000. From 2004-2008 it is always
decrease and getting better until reaches lower point in 2008 at 2,6 %.
In 2009, wages rose sharply despite the difficult economic situation and
according to SNB estimates, nominal wages as measured by the Swiss
wage index showed a 2.1% increase.

In 2010, a further recovery in economic activity can be expected. The

SNB anticipates GDP growth of around 1.0%. The main stimulus will probably


be derived from exports and from equipment investment.

It is rising unemployment rates, this will probably be more positive

movements in consumer and household. However, government savings
measures will probably have a noticeable impact on public consumption.

2004 2005
2006 2007 2008 2009

Employment in terms of full-time equivalents 0.0 0.2 1.4

2.8 2.8 –0.1

Unemployment rate in percent 3.9 3.8 3.3

2.8 2.6 3.7

Number of job seekers in percent 5.6 5.5 5.0

4.2 3.9 5.2

Swiss nominal wage index 0.9 1.0 1.2

1.6 2.0 2.1

Compensation of employees, nominal 0.1 3.7 4.2

5.3 5.3 4.113

The recession had an impact on the labour market. After two

exceptionally good years, new job created in 2009. Expressed in terms
of full-time positions, employment dropped by 0.1%. However, since the
number of part-time jobs increased at the expense of full-time positions,
the number of employees rising up. The level of employment varied


from one sector to another.

In manufacturing, which was particularly hard hit by the crisis, it

fell to around the level recorded at the end of 2006. The hotel and
restaurant industry and trade also experienced substantial lay-offs. By
contrast, new jobs created in public administration, education and
health. At the end of the year, a series of important employment
indicators were better to give contribution in stabilisation of the labour
market situation.

Question :

1. When The CPI of swiss increase, what is the sector which have a big
contribution in increasing CPI itself? And what does the government do
when the inflation happened?

Answer :

The biggest sector which has contributing in increasing CPI is

banking sector, because when the inflation happened, the bank of Swiss
is decreasing its saving interest rate, so that the people in Swiss don’t
want to save their money and the current money in society.
The problem solving of this inflation from government is to
incresing the interest rate in the Bank of Swiss, so current money in
society can decrease because willingness to save money of people
increase, and deflation happened. So, government can control the price
of goods and services in Switzerland.

3. Investment, Government Budget, Interest Rate and

3.1 Investment

The data is taken from:

Investment is money or capital to purchase financial instruments or

other assets in order to gain profitable returns in form of interest, income,
or appreciation of the value of the instrument. It is influenced by inflation,
government budget, and interest rate. If inflation is increasing, interest
rate will be increase too, and investment will be decrease. In addition, if
government budget is deficit, interest rate will increase, as a result
investment will be decrease.

Swiss gross investment was 23.23 percent of GDP and net
investment was 11 percent of GDP in 2000. In 2001 business investment
fell to 23.06 because of global economy slowdown.

Investment had undergone a sharp downward to 21.27 percent of

GDP in 2002 in continued the global economy slowdown because 9/11. A
decrease in investment still continued in 2003, it was 20.75 percent of

Investment got stronger in 2004, it was supported by

accommodative monetary and fiscal policies. Investment was 22.23
percent of GDP in 2007, it was supported by strong corporate profitability
and tightening capacity constraint. In 2008, investment spending
contracted as firms scaled back plans given the deteriorating outlook.

In conclusion, Swiss investment is stable. It was decrease in 2002-

2003 in response to 9/11 incident, increase in 2004-2007 because of
monetary and fiscal policies and because of economy got stronger, but it
was decrease again in 2008 because of global economy crisis.

3.2 Government Budget

A budget is generally a list of all planned expenses and revenues. It

is a plan for saving and spending. Sometimes budget is arranged to
experience a deficit. This policy is undertaken because some economists
believe that manipulation of the government budget surplus is
an effective way of stimulating or slowing economic growth. However,
other economists say that manipulating the budget deficit will
only result in a change in the price level in the economy, since

actual production change in an economy is only decided by changes in
the labor force, the state of technology, and productivity of the workforce.

Government budget was deficit 1998 and is estimated to have

risen further in 1999. It was related primarily to the high net investment
income (8 percent of GDP in 1997-99) on Switzerland's large net foreign
asset position (130 percent of GDP). It was noted the further increase in
Switzerland's large current account surplus that reflects primarily income
from a strong foreign asset position. They stressed that structural
reforms, including the removal of product market rigidities that
discourage domestic investment, would be crucial in helping to reduce the
surplus and strengthen growth prospects.

Swiss government budget surplus reached 2.19 percent of GDP in

2000. It was reflects the high net investment income on Swiss’s large net
foreign asset position. Windfall revenues and the strong economy helped
to generate a general government surplus of 1.8 percent of GDP in 2000
compared to a deficit of 0.4 percent of GDP in 1999.

The data is taken from:

In 2001, the general government surplus is expected to shrink to

0.3 percent of GDP as withholding tax and stamp duties revert to normal
levels. Directors welcomed the elimination of the federal budget deficit
ahead of schedule. In present circumstances, they did not see the
projected sharp decline in last year's surplus of the general government
as problematic from a cyclical point of view, especially as last year's
surplus mainly reflected transitory revenue gains. However, they
cautioned against the temptation to use the temporary revenue gains to
finance tax cuts or new expenditures. Directors had a wide-ranging

discussion on the links between competitiveness, openness, and
exchange rate developments. They observed that Switzerland's surplus
has risen further owing to substantial earnings on foreign investments.
Directors noted that the opening up of sheltered sectors could improve
productivity and raise investment, allowing over time for a reduction of
the current account surplus and for continued moderate real appreciation
of the Swiss franc.

In 2002, budget was increase to 0.55 percent of GDP. In 2003,

fiscal policy was broadly neutral, budget was projected to deficit of 0.81
percent of GDP.

Budget deficit was increase in 2004. The general government

deficit was estimated to have narrowed to 1 percent, and the federal
government was taking further steps under the debt-brake rule to
eliminate its structural deficit.

The general government deficit was halved in 2005 to 0.6 percent

of GDP but the structural deficit remained unchanged owing to the
deterioration of the underlying position of social security. The federal
government was on track to eliminate its small structural deficit by 2007.

Although unemployment has fallen to 3 percent in 2006, wage

growth pressures are expected to remain contained. As a result,
competitiveness has improved and surplus had reach 0.61 percent of
GDP. It was noted that Swiss external competitiveness is strong. In
addition, the large stocks of foreign assets of domestic pension funds and
high-earning multinational corporations in Switzerland have contributed to
a structurally large surplus

The state of public finances continued to improve in 2007. The

general government achieved a surplus of 1.15 percent of GDP aided by
strong cyclical revenues and surpluses at lower levels of government.

The fiscal stance was neutral in 2008. The general government
recorded a surplus of about 1 percent, as continued surpluses at lower
levels of government offset a small federal deficit

In conclusion, sometimes budget in Swiss is arranged to experience

a deficit like in 2003 which was projected to deficit of 0.81 percent of

3.3 Interest Rate

The data is taken from:

Interest rate on a financial asset is the interest received expressed

as a percentage of the price of the asset. Because the interest rate is a
percentage of the price of an asset, if the asset price rises, other things
remaining the same, the interest rate falls. Conversely, if the asses price
falls, other things remaining the same, the interest rate rises.

Interest rate influenced by inflation. Interest rate increase when

inflation increase and interest rate decrease when inflation decrease.

A decrease in interest rate may make a decrease in saving, and an

increase in investment. On the other hand, an increase in interest rate
may make an increase in saving, and a decrease in investment.

Amidst evidence in early 2000 that the economy was growing at an
unsustainable rate, monetary policy was adjusted promptly to head off inflation
pressures. The Swiss National Bank (SNB) raised the mid-point of its key
operational interest rate target from 1 percent in September 1999 to 3½ percent
in June 2000.

Interest rate was subsequently kept unchanged until March 2001

when signs of a weakening external environment and benign inflation
prospects prompted the SNB to reduce its interest rate target by ¼
percentage point.

A benign inflation outlook allowed the Swiss National Bank (SNB) to

cut interest rates aggressively in 2002, especially after September 11,
2001, and real short-term interest rates are currently below their
historical average

In response to low inflation and the weak cyclical position of the

economy, interest rates have been reduced rapidly and, at short
maturities, are close to zer0 in 2003.

With inflation very low and economic activity weak, the Swiss
National Bank (SNB) has relaxed monetary conditions considerably,
keeping short-term interest rates close to zero in 2004 and allowing a
rapid expansion of monetary aggregates.

Since raising the three-month policy rate to 0.75 percent in mid-

2004, the SNB has put on hold the return of interest rates toward a
neutral level.

As the recovery gained traction, the Swiss National Bank (SNB)

resumed raising its policy interest rate. Nonetheless, monetary conditions
remain supportive as short-term interest rates are still slightly negative
and the effective exchange rate has weakened somewhat.

The SNB continued to normalize interest rates in 2006 and early
2007. With five quarterly step increases of 25 basis points, the policy rate
now stands at 2¼ percent or about 1¾ percent in real terms, slightly
above average for past cycles.

The Swiss National Bank (SNB) continued to normalize interest

rates in the first half of 2007, but has since relaxed monetary policy when
necessary. The SNB's target range for the 3-month Libor has been
increased by 200 basis points since mid-2005 (to 2.25-3.25 percent) as
the Swiss franc weakened. Since September, however, repo rates have
been reduced to accommodate emerging credit strains which placed
upward pressure on Libor rates.

In conclusion, interest rate in Swiss was decrease in 2000-2003. A

sharp downward of interest rate happened especially after 9/11 incident.
It starts to increase in 2004, but it was decrease again in 2008 because of
global economy crisis.

3.4 Saving

Saving is the amount of income that is not paid in taxes or spent on

consumption goods and services. Saving increases wealth. Wealth also
increases when the market value of assets rises which is called capital
gains and decreases when the market value of assets falls which is caleed
capital loss.

In 2000, saving in Swiss is 29.04 percent of GDP. It was decrease to

28.00 percent of GDP in 2001. After 9/11 incident, saving in Swiss

decreased to 27.83, influenced by the a sharp downward of interest rate.
The decrease still continued in 2003, in response to low interest rate.

A desire to saving was seen in 2004, an increase of 0.6 percent of

GDP was happen. There’s no significant increase in 2005, the increase
just 0.21 percent of GDP. Because of interest rate was normalized by SNB
in 2006, a significant increase was seen. The increasing of saving
continued to 31.43 percent of GDP in 2007, which is the biggest saving
from 2000-2007.

The data is taken from:

Gross National Saving is the sum of private saving and government

saving. Swiss gross national saving is influenced by private and
government saving. Saving in Swiss in 2003-2005 is from household

saving. We can see that in 2003-2005 government was projected deficit
to stimulating or slowing economic growth, so there’s no contribution
from government saving in that year.

In conclusion, saving in Swiss is influenced by government saving

and private saving. In addition, saving in Swiss also influenced by interest
rate. When interest rate increases, the desire to saving is increases and
when interest rate decrease, the desire to saving is decreases. We can
see that in 2000-2003 interest rate are decrease, so do the saving in that
year. In 2004-2007 saving are increases because it was influenced by the
increases of interest rate.

4. Financial System
4.1 Banking in Switzerland

All of banking and financial policy in Switzerland are regulated by Financial

Market Supervisory Authority (FINMA) of Switzerland, one of those is about securities
market and investment fund which stated in article 98 of CD. This Regulation is also
included what policy done by bank central to regulate all banks in Switzerland and manage
monetary stability condition. Principally Banks in Switzerland really respect two kinds of
aspect in recognizing people who save their money in Bank. The two of those aspects are
privacy principle and protection principle. Based on these two principles, it could be
concluded that Banking in Swiss has good safety to protect and hold privacy of consumers

Moreover banking technology had been applied to pursue all kinds of banking
activities. In last period, people of Switzerland used post office services to secure banking
activities but by technology increasing and modernization era, Swiss Banking is holding
Swiss Interbank Clearing (SIC) which is monitored by Swiss National Bank (SNB) as the
central Bank of Switzerland.

Furthermore there will be explanation about the definition, function and system of
central bank in case creating stability condition of Switzerland and information of banks
which has existed in Switzerland included the major banks which also have great roles in
supporting financial and banking condition of country.

4.1.1 Central Bank

Swiss National Bank (SNB) is the central bank of Switzerland which has
been built since January 16th, 1906 and has been operated since June 20th, 1907.
The Principle Tasks of National Bank such as regulating the country’s monetary
circulation, facilitating payment transactions, and pursuing a monetary policy
serving the interest of country as a whole. Unlike most foreign central banks,
Swiss National Bank is not state-owned bank14 which has status as an independent
public-law institution in form of joint stock company and all SNB’s shares are
registered and listed on stock exchange. However Shareholders’ voting right are
restricted by statute to Swiss citizens, Swiss public-law corporations and legal
entities whose main establishment is in Switzerland and just under 60% of shares
are held by cantons and cantonal banks, the remainder are mostly owned by
private persons but confederation does not hold any shares15.

The administration of National Bank consists of cooperation and under

supervision of confederation. The Governing Board, which consists of three
members of equal status, is entrusted with the Bank’s management. Each member
is head of one of three departments2. The details of them are concluded The Bank
Council, Bank Committee, and Auditing Committee which are responsible for
supervision of National Bank’s business activity which led by the chief of SNB
with the task of pursuing a monetary policy serving the interest of country as a
whole. As those of three departments which have different roles and
responsibility, Department I with its department office in Zurich is responsible for
the monetary policy concept, this department does analyses the economic
situation and developments besides providing the basis for monetary policy
decisions. Meanwhile department II which has centre office in Berne has roles to

14 Structure and organization of the Swiss National Bank, Annual report of SNB
15 Structure and organization of the Swiss National Bank, Annual report of SNB

issue banknotes and put the coins minted by confederation into circulation or
responsibility of cash division. The monetary operation of department III has
division of implementing monetary policy by carrying out transaction in financial

Talking about the volume of banknotes and coins put into circulation, it will
depend on the requirements of the economy and on payment habits. In another
sides, Swiss National Bank cooperates in planning and processing of cashless
payment transactions.

4.1.2 Major Banks and Other Banks

Since 2006, there had been more than 408 banks and securities dealers
which authorized in Switzerland. This fact could give the information how stable
banking situation in Switzerland.

In Switzerland, there are two major banks as the first and the second
largest. They are Union Bank of Switzerland (UBS) and Credit Suisse which have
account for over 50% of all deposits in Switzerland and have extensive branch
networks throughout the countries and most international centre countries. Swiss
National Bank itself reported that due of those reasons, UBS and Credit Suisse
are being subject to an extra degree supervision from the federal banking

a. Union Bank of Switzerland (UBS)

UBS was found in 1862 but started to exist in June 1998 after merging
with Swiss Bank Corporation which was found in 1872. Until now, UBS
maintains seven main offices around the world, four branches in USA and
another ones are in London, Tokyo and Hongkong.

This Union Bank of Switzerland authorization had given significant
number of profit for the country and help to decrease unemployment. Based
on information browsed from annual report of Swiss National Bank of year
2008, UBS had market capitalization for over CHF43 billion with net loss for
over CHF27.56 billion. This bank also could hire for 77,7783 employees.

b. Credit Suisse

This bank was found in 1856 which acquired as The First Boston
Corporation in 1988. Similar with UBS, in 1997 Credit Suisse merged with
Winterthur insurance company in 1997. Its operational is concluded the
offering private banking, investment banking, and asset management
services, though in 2008 the asset of management services were sold to
Aberdeen Asset Management during the GFC.. The same sources based in
year 2008, this bank had market capital for $95.2 billion and its employees
had reached for number of 40000 employees.

4.1 Money of Switzerland

4.1.1 Official Monetary

Switzerland has official monetary which is famous as Swiss Franc, as ISO

stated as CHF. As common official monetary in another countries, Swiss Franc
also consists of banknotes and coins. The kinds of Franc is also used in daily life
of economic activity in Italia and Germany, but not as state official monetary.

These are Several pictures of Swiss Franc

Source :

Since year 1907, Swiss National bank has taken the right and role of
banknotes and coin minted from banks and some cantonal officers. Until now this
policy and another things related to the circulation of official monetary is holding
by Swiss National Bank, as the central bank of Switzerland.

The fluctuation of money value and exchange rate to another currencies

are influenced inflation rate of country. Therefore the central bank is really
serious to set the monetary policy related to this case. For additional information,
the table below gives the detail of number circulation of money in March 2010
and could influence monetary policy that will be explained in next page.

Source : Swiss Television (in Germany ): 880 billion illegal

4.1.2 Monetary Policy and Monetary Condition

Some of monetary policies are managing price stability and supplying

money market with liquidity. Furthermore since year 2000, Switzerland
government with its central bank concern to the three elements included the
definition of price stability itself, the medium term inflation forecast with the
target range for reference interest rate, and the three month of Swiss Franc
London Interbank Offered Rate (LIBOR). Basically, Swiss national Bank made
monetary policy by considering the inflation and interest rate forecasting in neat
period which analyzed by current monetary condition and steering the three-
month LIBOR for Swiss Franc.

The explanation below is about several indicators influenced the monetary

policy which had been stated in previous explanation such as price stability,
supplying money market, and London Interbank Offered rate (LIBOR).

a. Price Stability

Price stability is one of the important conditions for growth and

prosperity. Inflation and deflation, by contrast, are both impair economic
activities. Those could be factor of inhibiting factors for the decisions of
consumers and producers, lead to misallocations of labor and capital, result
in income and asset redistribution, and put the economically weak at a

As the standard strategy to manage monetary condition, The Swiss

National Bank equates price stability with a rise in the national Consumer
Price Index (CPI) of less than 2% per annum. Deflation which has meaning
as protracted decline in price levels, is considered to be equally detrimental
to price stability16.

b. Supplying Money Market

The National Bank of Switzerland provides The Swiss Franc with

liquidity by influencing the interest rate in money market. The interest rate
which could be indicator of banking activities of society related to saving and
investment is set as efficient as possible to create the balance money
circulation and solve the crisis of inflation even deflation.


London Interbank Offered Rate (LIBOR) is a trimmed mean of the rates

charged by 12 leading banks and it is published daily by the British Banker’s
Association. Included rate in the interbank market for unsecured loans17. The
National Bank publishes the target range for interest rate regularly and
periodically. As a rule, this range extends over one percentage point, and the
Swiss National Bank generally aims to keep LIBOR in the middle of the

16 Annual Report of Swiss National Bank 1997

17 Ibid

All kinds monetary policy managed and set by government and its central
bank of country give significant impact into the progress of fluctuation of
economic growth especially monetary condition. These cases also happened in
Switzerland economic. Some of cases related to what monetary policy set are
inflation rate and interest rate which are observed in next explanation.

• Inflation Rate and Interest Rate on year 2000 until 2004

As the theory of inflation rate calculation, the fluctuation of

inflation rate is based on calculation its consumer price index (CPI). The
price level of things which consumed by people will be the parameter of
increasing and decreasing consumer price index (CPI). The higher CPI of
country, the higher inflation rate. The central bank’s role as they manage
the stable inflation is setting the interest rate of banking which can
influenced saving and investment and keep money aggregate stable. When
inflation rate is high, Central bank tries to set the higher interest rate then
before to invite people to save their money and aggregate money will be
decreased. This case also occurs vice versa, as deflation happens, Central
Bank set the interest rate low to invite people to do investment.

Moreover based on the monetary policy that Switzerland set the

target of inflation rate for 2% per annum. For period 2000 until 2004, the
inflation rate of Swiss were around 0-2%. Switzerland has big enough
energy consumption for its industrial and daily life, therefore the price
level of things are influenced by the price level of crude oil. As the fact
mostly reasons of fluctuation of inflation rate for year 2000 to 2004 are
cases of movement of crude oil price level besides there are several

tragedies related to social and politic which influenced the economic
condition and give impact to its inflation rate. The graph below can show
the information of inflation rate of Switzerland in 2000 to 2004 and its
relationship to its interest rate.

Interest Rate

Interest Rate

Source : Annual report of Swiss National

Bank of 2004

Switzerland started its inflation rate at approximately 1.4% in final

of year 2000 when government of Swiss implemented the five
measurement. Other side interest rate was set started in around 3.5% for
the earliest year 2000.

Entering year 2001 the rate of inflation increased and decreased in

its quarter period and middle of year, the fluctuation were still in stable

growth which around 0.4% to 1.6% but last decreased into 0.5% point as
one of impact of WTC Attack on September 2001. The bad economic in
US influenced economic activities in another countries included
Switzerland. In this time, central Bank of Swiss took the policy to set the
interest higher as the earliest period but then decreased as tragedy
happened because the banking condition was not stable to set interest rate
high, though it returned be stable as last decade of year.

The WTC impact in last period of year 2001 were still continuing
in first quarter of year 2002. It can be shown by the clear fluctuation of
inflation rate as its rising to 1.1% but then fell into 0.1% and started
increasing to point 1.2% in short time period. However it succeed to reach
about 1% point in final of year.

Meanwhile in 2003, uncertainty of Iraq War and issue of SARS

epidemic were causing the disturbance in business and investment which
influenced the interest rate and inflation rate. As fact, low level of inflation
below 1% point was continuing by the moment of middle year to the last
period of year after inflation rising had suddenly occurred in early period
of year.

Contra with the previous before, in 2004 Switzerland and several

countries were in global business climate so that inflation rate indicated
rose in to above point 1% although interest rate did not give any
significant fluctuation.

Another information of next year of Switzerland for its inflation

and interest rate can be shown by the graph based on Swiss National Bank
annual report of 2009.

• Inflation Rate and Interest Rate on year 2005 until 2009

Interest Rate

Interest Rate

Source : Annual report of Swiss National

Bank of 2009
In year 2005, inflation of Switzerland was stable based on its
annually target, it just reached below point 1.5% and got 1% point at the
end of year, besides the interest rate also stepped into not far from point

However the small fluctuation were caused by the movement of
crude oil price level. However year 2006 is not so different from 2005,
the 2% of annually inflation rate was accomplished in this year. The
fluctuation just moved around 1.5% and finally reached 0.5% point while
interest rate was along 2.5%.

As first decade of year 2007, nothing to be worried for its inflation

rate, but after reaching second quarter of year it moved higher into
approximately 2.5% point and over the annually target. This case occurred
because of complexity other cases such as increasing price level of crude
oil, rising price of import goods, and a reason related to its exchange rate.

Extreme point of inflation in year 2007 did not stop while entering
the year 2008 even stepping into higher position and reached posint 3% of
inflation. Actually it is the effect and reason of global economic crisis
which occurred in United States and then influenced another economic
activities included in several countries. Furthermore to solve this crisis,
government of Switzerland and its Central Bank set the interest in high
rate to control monetary aggregate besides reducing consumption so that
it started to be decreased gradually in middle term into last term of year in
position 0.5% point.

While 2009, Switzerland still concern to reduce the consumption

and set the monetary policy to recover the economic condition, inflation
rate started to decreasing until -1.3% but then it began to rise continually
to the position of 0.4% point in last decade of year 2009 by the moment of
another countries tried to recover economic condition. As the interest rate
set lower, as the inflation rate could be pressed lower.

In conclusion, Swiss investment is stable. It was decrease in 2002-2003
in response to 9/11 incident, increase in 2004-2007 because of monetary
and fiscal policies and because of economy got stronger, but it was decrease
again in 2008 because of global economy crisis.

Sometimes budget in Swiss is arranged to experience a deficit like in
2003 which was projected to deficit of 0.81 percent of GDP.

Interest rate in Swiss was decrease in 2000-2003. A sharp downward

of interest rate happened especially after 9/11 incident. It starts to increase
in 2004, but it was decrease again in 2008 because of global economy crisis.

Saving in Swiss is influenced by government saving and private saving.

In addition, saving in Swiss also influenced by interest rate. When interest
rate increases, the desire to saving is increases and when interest rate
decrease, the desire to saving is decreases. We can see that in 2000-2003
interest rate are decrease, so do the saving in that year. In 2004-2007
saving are increases because it was influenced by the increases of interest