Headaches in the supply chain, inflationary pressure, the new Omicron variant, the strong Swiss franc and tough competition in the pharmaceutical and banking industries – journalists from SWI swissinfo.ch outline the most important issues that will influence the Swiss economy in 2022.
This content was published on December 29, 2021 – 9:00 am
1. Strong economic growth vs. Omicron uncertainties
After a solid growth recovery of + 3.5% this year, the Swiss economy is likely to see above-average growth again in 2022. The State Secretariat for Economic Affairs (SECO) is forecasting GDP (gross domestic product) growth of 3%, with supply chain problems and new health measures in response to the new Covid-19 Omicron variant, which is contributing to the slight slowdown.
The labor market has fully recovered from the pandemic. In areas such as IT, architecture, the chemical and pharmaceutical industry or mechanical engineering, it is difficult for companies to find skilled workers.
The shortage of skilled workers in the health and social services sector is also above average, as a recent study by Credit Suisse shows. SECO predicts that the unemployment rate in Switzerland will fall in the next two years from 3% in 2021 to 2.4% in 2022 and 2.3% in 2023.
2. Inflation Risks
In addition to fears about the emergence of new Covid variants, the risk of inflation – currently higher than expected in both the US and the euro zone – is cause for concern.
“I assume that inflation will subside by itself, even if interest rates do not change,” says Katrin Assenmacher, Head of Monetary Policy Strategy at the European Central Bank (ECB) and previously at the Swiss National Bank (SNB).
In the USA, however, all signs point to rising interest rates. Federal Reserve Chairman Jerome Powell is believed to be an advocate of tight monetary policy, which leads experts to wonder how long the US Federal Reserve will be bystanders before tightening monetary policy – if necessary.
Higher interest rates would also put pressure on the SNB to raise interest rates, which would further strengthen the Swiss franc. In such a scenario, parity between the Swiss franc and the euro could become a reality.
3. Swiss pharmaceuticals – competition from all sides
As a key driver of Swiss exports and responsible for more than a third of GDP growth since 2010, the pharmaceutical industry is likely to continue its upward trend next year. But foreign competition is tougher than ever. Ireland, Denmark, the US San Francisco Bay Area and Singapore are actively seeking pharmaceutical companies.
The Swiss pharmaceutical giants Roche and Novartis are facing tough competition from new biotech players such as BioNTech and Moderna [the companies behind successful mRNA Covid-19 vaccines], as well as from the technology giants Google and Amazon, who use artificial intelligence (AI) and big data to develop shares in the lucrative health sector.
These major challenges come at a time when health systems around the world are under increasing pressure and governments are questioning the prices of new drugs entering the market. To compete, the Swiss pharmaceutical industry will be forced to invest heavily in the research and acquisition of companies involved in the development of personalized drugs and treatments, the newest holy grail in the pharmaceutical industry.
4. The industry is picking up again
After the worst year in history in 2020, Swiss watchmaking really bounced back in 2021, driven by strong demand from China and the US. And while uncertainties remain, the market is expected to continue to improve in 2022, much depends on how and when international tourism, essential to the luxury markets, recovers. The most optimistic experts predict that exports will reach CHF 21-22 billion ($ 23-24 billion), close to the 2014 record.
Less visible than the watch industry, but much more important in terms of exports and Swiss jobs (320,000 jobs), the machine, electrical and metal industries (MEM) are also optimistic about the future. In an industry that has been badly affected by the effects of the pandemic, the order books are full again and net sales have increased.
However, the industrial sector is under great pressure due to the supply shortage and the associated price increases for important raw materials. The strengthening of the Swiss francexternal link against the euro appears to have been absorbed by industry. Many managers used the crisis to invest in innovations and thus improve their competitiveness.
5. Banks, blockchain, and a potential real estate bubble
Banks will keep a close eye on inflation and interest rates in 2022. Should the rise in consumer prices take too much or longer, this could move Swiss interest rates back into positive territory for the first time in years. That would be good news for investment bankers, but it could also expose mortgage loans to homeowner defaults. Both the SNB and the Swiss Financial Market Supervisory Authority (FINMA) have warned banks several times that their rapidly growing mortgage loan portfolios could plague them again.
FINMA requires banks and other financial companies to report their exposure to risks related to climate change. This includes investing in companies and fossil fuel projects. The new trend towards sustainable investing promises new sources of income, but only if done right. Non-governmental organizations (NGOs) will be vigilant against all attempts to trick investors into believing that they are investing their money in green finance if the bonds and funds are doing nothing for the environment and society.
Finally, banks need to watch out for new technological advances in the financial world. Several digital banks have already carved out a niche for themselves in traditional finance. The new kids on the block are cryptocurrencies and decentralized finance that automate trading with the intent of excluding intermediaries like banks. Blockchain is unlikely to destroy traditional finance in 2022, but banks are realizing that their way of life will be challenged by the new technology.
6. Multinational corporations are facing a new playing field
Multinational companies are coming under increasing pressure from regulators, investors and NGOs to clean up their supply chains. From 2022, large companies in Switzerland will have to report on social and environmental issues. From 2023, companies in high-risk sectors such as mining will also have to carry out due diligence for risks related to child labor and minerals from conflict areas.
Activists behind the Responsible Business initiative, which was narrowly rejected in a nationwide vote in 2020, say the new law does not go far enough and will continue to push for greater corporate accountability for its impact abroad. The European Commission is expected to come to a long-awaited decision on responsible business in 2022, which could go beyond Swiss law.
Multinational companies are also being tested in other contexts such as China and Myanmar, where there have been reports of widespread human rights violations. Human rights activists will continue to use social media to name and shame companies and investors who are seen as accomplices in abuses.
7. Sound public finances
Healthy public finances are also a sign of a resilient economy. After the federal budget slipped into the red in the last two years, the federal budget should regain a semblance of normality in 2022. The extraordinary 40 billion francs that were necessary to cope with the pandemic should have amortized in ten years without costing the taxpayer a cent. The government intends to use the budget surplus and profits of the SNB to pay off the debt.
The long-term outlook is also very positive. Despite rising training expenses and costs related to the aging of the population the governmentexternal link estimates that the Swiss national debt (federal government, cantons and municipalities) will increase in the worst case from 30% of GDP to 51% by 2050.
In comparison, the average debt ratio in the euro area is already close to 100% of GDP. According to the government’s economic modeling, this swelling of the state should not pose a problem for Switzerland, since the overall prosperity of the nation is expected to increase “net” over the same period.