UBS Outlook Switzerland: growth through innovation
Companies in high-tech sectors grow the fastest, create the most jobs and are internationally competitive. Switzerland’s 20 most innovative companies have created around 91,000 jobs here and are indirectly responsible for another 270,000. Switzerland should focus on improving its economic environment for research and development to keep innovative companies in Switzerland and attract new companies from abroad.
Zurich, 28 April 2016 – Innovation is a key factor in securing and boosting economic growth and prosperity in Switzerland. High-tech clusters such as pharmaceuticals, watches and medical technology play a particularly important role. A study by UBS Chief Investment Office Wealth Management shows that the economic value added in high-tech sectors grows faster than in other industries, and that these sectors create the most jobs.
Almost 10% of GDP
After accounting for indirect effects (including suppliers), Switzerland’s 20 most innovative companies (i.e. those with the most patent applications in 2014) generated 9.6% of nominal GDP and 7.6% of all jobs in Switzerland (270,000). They are considerably more productive and faster-growing than other industrial sectors. Furthermore, they invest a disproportionately high amount in research and development in Switzerland. However, the country is at risk of losing its innovative edge.
"Switzerland's economic growth in recent years was largely based on immigration, higher domestic demand and greater expenditure on administration and health care. It is not sustainable to switch from export-led growth to growth driven mainly by domestic factors," said Lukas Gähwiler, President UBS Switzerland, at a media event in Zurich. He added, "The only way to achieve lasting prosperity is through innovation and entrepreneurial value creation. We must focus on improving every aspect of our economic environment to keep innovative, productive, and research-driven companies in Switzerland and continue to attract new companies from abroad." This includes cutting back on the red tape and regulations that stifle innovation, maintaining tax incentives for research-driven companies and startups, proactively supporting STEM education (science, technology, engineering and math) and providing access to skilled foreign workers and highly qualified researchers.
Modest economic growth this year
Over one year later the Swiss economy is still feeling the impact of the Swiss National Bank's (SNB) decision to lift the EURCHF exchange rate floor. UBS economists assume that the adjustment process will continue this year, and that economic growth will be slight, at 1%. Investment will likely have a dampening impact on growth. The strong Swiss franc and wide-ranging political uncertainty – partially due to the implementation of the mass immigration initiative – are inhibiting and delaying companies’ investment decisions. Moreover, the prospects for construction investment are mixed, since vacancy rates are rising on the back of slower immigration and robust construction activity in recent years.
SNB unlikely to push negative interest rates lower
Negative interest rates in Switzerland are unlikely to go deeper if the SNB manages to keep the EURCHF exchange rate in the "comfort zone" above 1.07 without having to intervene too much. Even at their present level, negative interest rates are already creating undesirable side effects for the Swiss finance and pension system. If the European Central Bank's bond-purchasing program ends in spring 2017, the SNB will have an opportunity to change interest rates in fall 2017.