No preferential EU treatment for Switzerland

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No preferential EU treatment for Switzerland

Samy Chaar - Chief Economist

Samy Chaar

Chief Economist

Article published in 24 heures, September 19, 2018, by Samy Chaar

Samy Chaar, Chief Economist of Banque Lombard Odier & Cie, gives his analysis of the trade negotiations with the EU.

It is likely that Switzerland will have to bend to the will of its principal economic partner in trade negotiations with the European Union. “In principle, it’s simple. Either Switzerland agrees, or it does not agree. There is no happy medium”, Samy Chaar, Chief Economist of Banque Lombard Odier & Cie, tells AWP.

The Swiss authorities are trying to wrestle an inter-institutional agreement from their European counterparts, particularly in the financial sector. European Commission President, Jean-Claude Juncker, has already warned that there can be no step-by-step negotiations or “light” agreement. “I am against a piecemeal approach”, he explained in an interview on RTS last week.

It is unrealistic to think that Switzerland can demand a change to a rule that it does not like but one that was decided by 28 States. The British have learned this, to their cost, with Brexit.

No cause for complaint

Samy Chaar understands this viewpoint. The economist points out that the EU takes collective decisions. “It is unrealistic to think that Switzerland can demand a change to a rule that it does not like but one that was decided by 28 States.” The British have learned this, to their cost, with Brexit. They will eventually accept European rules and remain close to the Union”, says Mr Chaar.

The specialist believes, moreover, that our country does not have too much to complain about in its trade relations with its European partner. “The Swiss may take offence, but it is difficult to do without the EU, which is the largest trading zone in the world.”

According to figures published by the Federal Customs Administration, in 2017, 53% of Swiss exports (excluding gold and currency) were destined for the European Union, equating to a total of 117.07 billion Swiss francs. Imports from the 28 Member States represented a figure of 132.64 billion Swiss francs (71% of the total). Therefore, at the end of last year, Switzerland had a trade deficit with the EU of 15.57 billion, higher than 2016’s figure of 11.53 billion.

 

Negative rates continuing in 2019

Switzerland’s sound economic health particularly relies on the economic tailwinds of its neighbours. Lombard Odier projects 2.1% growth in Switzerland, in 2018, with inflation running at 1%. A slowdown is anticipated next year. Growth would then be at 1.6%, with inflation at 1.2%. For 2020, the forecasts are 1.5% and 1.5% respectively.

For Samy Chaar, inflation in Switzerland has levelled out, at 0.5%, the average for the past 30 years. The correct value of the Swiss franc against the euro is estimated at between 1.15 and 1.17. At a level currently of around 1.125, the Swiss currency continues to be slightly overvalued. The chief economist puts this situation into context. “There were fears linked to the crisis in Turkey and to the Italian budget. These did not push the franc below 1.10. The Swiss National Bank can congratulate itself. The franc is holding up well”.

There were fears linked to the crisis in Turkey and to the Italian budget. These did not push the franc below 1.10. The Swiss National Bank can congratulate itself. The franc is holding up well.

Lombard Odier anticipates to see rates rising in increments from September 2019, due to the likelihood of rate hikes by the European Central Bank. Negative rates will, however, continue throughout the coming year in Switzerland. The bank expects a rate of 0.25% by the end of 2020.

This gradual rise is unlikely to have a massive impact on the Swiss mortgage market. “Rates are currently very low. I think that the system could handle another 1%”, Samy Chaar points out. In his view, the Swiss National Bank could not raise interest rates by more than 1% before the next global economic slowdown.

Important information

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