Zurich, 30 January 2020 – “Donald Trump continues to cast his shadow on the Swiss economy this year,” UBS economist Alessandro Bee says. While the recently signed partial agreement in the US-Chinese trade dispute is reassuring investors, the global economy and thus Swiss exporters, too, will probably not be able to breathe a sigh of relief until the second half of the year. This is because, in the first six months, the global economy will first have to digest the collateral damage caused by last year’s escalation in the trade conflict. UBS therefore forecasts a GDP growth of just 1.1 percent for the Swiss economy. Since this is below the growth potential, it is also keeping inflation in check (UBS estimate for 2020: 0.5 percent).

As was the case last year, the central banks are prepared to support economic growth in 2020 should it falter. The US Federal Reserve (Fed) could cut its prime rates up to three times in the event of an economic downturn in the US. Were the ECB to cut its rates in March in response to the Fed’s monetary policy, it would pass on the pressure to reduce interest rates directly to the SNB. “The ECB is likely to wait until April or even longer before making any interest rate cuts. This would ease the pressure on the SNB and enable it to avoid a rate cut,” says Bee. Thanks to the SNB’s determination to intervene when the franc is strong, UBS economists see the EURCHF exchange rate at 1.10 for the coming twelve months.

Non-systemic redistribution is a cause for concern

In addition to short-term risks, further uncertainties are dampening the economic outlook. “The uncertainties in our pension system are a long-term burden on the Swiss economy,” says Jackie Bauer, economist and pension expert at UBS. The extent of the non-systemic redistribution from employed persons to pensioners in the second pillar is of particular concern. The excessively high minimum conversion rate is currently resulting in the redistribution of almost CHF 7 billion per year from employed persons to pensioners. If this is not halted, the standard of living of future generations will decline.

Many pension funds have done their homework in recent years. Future-oriented adjustments, such as higher contributions and fair conversion rates, have enabled most occupational pension funds that cover more than the mandatory minimum to establish a stable financial foundation. This also benefits their affiliated employers. After all, a sustainable occupational pension solution is an important criterion for offering an attractive job in the competition for skilled workers. UBS’s guide to occupational retirement planning helps companies to find the optimal second pillar pension solution for their individual situation.

At the end of 2019, the Federal Council submitted its reform proposal for mandatory second pillar insurance benefits for consultation. “The immediate reduction of the minimum conversion rate from 6.8 to 6.0 percent is a positive development, even if a value between 4 and 5 percent would be fairer in the current environment,” explains Jackie Bauer. Furthermore, the better insurance for low-income earners through the reduction of the coordination amount is to be welcomed.

New pensioners benefit at the expense of the young

However, the consultation draft misses the most important goal: to significantly curb redistribution from younger to older generations. The reason for this is the unlimited compensation payments for all future pensioners, financed by wage contributions by the working population, as demanded by the draft. While the current redistribution mainly benefits those with mandatory insurance, financially well-off new pensioners with supplementary insurance would now also benefit. The number of those receiving redistribution would thus increase at the expense of the young rather than being limited.

The goal of limiting redistribution to what is politically necessary would be significantly closer to the proposal of the “Allianz für einen vernünftigen Mittelweg” (Alliance for a Sensible Middle Course). This Alliance agrees with the Federal Council on many basic principles. However, sufficient compensation will be achieved in combination with a greatly reduced redistribution, as compensatory measures should only accrue to new pensioners who would actually be affected by the reduction in the minimum conversion rate.

UBS Swiss economic forecast

*Year 2018 (in CHF bn at current prices, seasonally adjusted) ** excluding non-monetary gold and valuables ***annual average


UBS Switzerland AG

Media contact

Daniel Kalt
UBS Chief Investment Officer Switzerland
Phone +41-44-234 25 60

Jackie Bauer
Economist and pension expert
Phone +41-44-239 90 61

Alessandro Bee
Phone +41-44-234 88 71