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UBS Outlook Switzerland: EU-Switzerland relations under scrutiny

Zurich Media Releases Switzerland

The Bilateral Agreements I are crucial for long-term Swiss corporate success, a survey UBS initiated in February concluded. Almost two-thirds of Swiss companies endorsed modifying the Bilateral Agreements on the basis of a framework agreement, although most expressed skepticism regarding the EU's cohesion.

Zurich, 10 April 2017 – At the end of March the UK submitted its decision to leave the EU. Protectionism is also reviving under US President Donald Trump, and French presidential candidate Marine Le Pen openly opposes free trade. Given this challenging international business climate, stable trading relations with the EU are particularly important to Switzerland. But the skepticism of the Swiss population vis-à-vis the freedom of movement of persons and the EU's insistence on an institutional framework as a basis for continuing down this "bilateral path" is gnawing at this stability. Relations with the EU may turn shaky in the coming years.

Canceling the Bilateral Agreements I would have negative effects

UBS economists questioned 2500 entrepreneurs or persons in senior company roles as part of a new survey on the relations between the EU and Switzerland. In general, the companies contacted viewed the cohesion of the EU skeptically, and two-thirds of the survey participants expected further departures from the community of states. In addition, the EU will probably surrender some of its economic importance without the UK, participants suggested.

Nevertheless, the majority of them still regarded the Bilateral Agreements I as important to the success of their companies. "The results revealed that abandoning the Bilateral Agreements would have negative business consequences for a great many companies," emphasized Martin Blessing, President UBS Switzerland, at a Zurich media event. Moreover, the Agreements grow in importance proportionate to the size and foreign sales of a company. When those surveyed were asked about the benefits of the individual features of the Agreements, the freedom of movement of persons came out on top.

In response to the question of how relations between the EU and Switzerland should be configured, only 8% of the companies voted for canceling while 27% for retaining the Bilateral Agreements. A full 65% of survey participants want the Bilateral Agreements modified based on an institutional framework agreement with the EU.

Swiss economy may grow 1.4% this year

Despite the massively overvalued Swiss franc, the Swiss economy expanded by 1.3% last year. This year UBS expects GDP growth of 1.4%, little changed but on a broader base. Most Swiss companies have adjusted to the new exchange rate realities. Thanks to the broader-based growth, unemployment will probably fall slightly over the course of the year. Inflation will likely rise thanks chiefly to the crude oil price recovery, as well as to the deflationary effect of the strong Swiss franc fading. Swiss inflation will probably reach 0.4% this year.

Political risks threaten the optimistic outlook

The election of far-right candidate Le Pen in the looming French presidential election could bring about a renewed euro crisis, many political observers fear.

Worries that Le Pen might win have increased pressure on the Swiss franc in the last few months. The Swiss National Bank (SNB) prevented any major appreciation of it by intervening in currency markets in February and March. The pressure will likely continue through the second round of the elections, and the SNB will probably continue to intervene to combat it.

Daniel Kalt, UBS Chief Economist Switzerland, does not see the SNB raising interest rates from their current -0.75% to -0.50% until June of next year. Only after the European Central Bank has greatly reduced its bond-buying program and the pressure on the Swiss franc has abated is the SNB likely to hike them, he says.

UBS Swiss economic forecasts

In developing the UBS CIO WM economic forecasts, UBS CIO WM economists worked in collaboration with economists employed by UBS Investment Research. Forecasts and estimates are current only as of the date of this publication and may change without notice.


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Media contact

Daniel Kalt, Regional CIO Switzerland
Phone +41 44 234 25 60,

Sibille Duss, UBS Chief Investment Office WM
Phone +41 44 235 69 54,

Alessandro Bee, UBS Chief Investment Office WM
Phone +41 44 234 88 71,