UBS Outlook Switzerland

Analyses and forecasts on the Swiss economy as well as on interest rate and currency markets

DE | FR | IT


Occupational retirement planning

The Swiss three-pillar system – once praised as a global gold standard – has come under tremendous pressure from demographic change, negative interest rates and years of postponing reforms. Retirement provision is a topic that continues to rank high-up on people's worry list. So that's a good reason to take a closer look at these issues – from the company's perspective – in this edition of UBS Outlook Switzerland.

Pillar 2 is a complicated decision for employers

Choosing an occupational pension solution is a strategic HR factor for a company.

Companies have to make a wide variety of decisions when crafting a pension solution. Depending on the benefits and risk coverage, pension plans may entail more or less involvement, resources, risk assumption and expense.

Decisions about occupational pension solutions

  • Standalone pension fund, collective or community foundation, comprehensive insurance
  • Weighing the needs and interests of different stakeholders (e.g. age, salary)
  • Range of services and attractiveness of pension solution in the job market
  • Pros and cost of switching pension solutions and turning to a broker for support

Pension plans as decision-making criterion

Pension plans play a bigger role than ever before in making employers attractive and should therefore be chosen very carefully.

BVG reform at the expense of companies and young people

minimum conversion rate

The minimum conversion rate has to decrease as life expectancies rise and investment returns fall. The latest AHV reform proposals also include pillar 2 reforms.

The Federal Council's consultation draft includes the following steps for fixing occupational pensions and achieving a popular majority:

  • Reducing the minimum conversion rate from 6.8% to 6%. However, the conversion rate would have to fall to 5% to stop redistribution altogether.
  • Pension subsidy to compensate for smaller pensions. However that goes for everyone, not just for age groups approaching retirement who are affected by a reduction in the minimum conversion rate. The subsidies should be financed by employee contributions.
  • Reduction of contribution rates to make older employees more competitive.
  • Dividing the coordination amount in half in order to better insure low-wage earners.

Economy & Financial Markets

Swiss Economy

  • We expect Swiss GDP to grow by 1.1% in 2020, well below potential. Exports and investment are likely to grow below average because of trade policy uncertainties. Consumption, however, should live up to its role as an economic stabilizer this year.
  • If the focus of US protectionism shifts from China to Europe, this would mean a negative surprise for Switzerland.
  • If, on the other hand, the German government releases its fiscal handbrake and supports the European economy, this would be a positive surprise for the Swiss economy.

Monetary Policy

  • If the US economy weakens significantly in the coming quarters, the Fed is likely to cut key interest rates three times. If the ECB cuts its key rate in turn, as a reaction to the new US monetary policy, it would directly pass on the pressure to the SNB. In this environment, the SNB would also be forced to reduce its interest rates by another 25 basis points.
  • However, it's more likely that the ECB will wait with cutting rates, thereby reducing pressure on the SNB, which then could refrain from a rate cut. Nevertheless, the negative interest rate phase is likely to continue for the next few years. It is unlikely that the SNB will fundamentally change its monetary policy in the coming quarters, despite the rising cost of negative interest rates.
  • Despite the increased uncertainty, we do not see a significant appreciation of the Swiss franc against the euro, because the SNB would fight such an increase if necessary. On the other hand, the Swiss franc could appreciate significantly against the US dollar.

Forecasts

UBS Swiss economic forecasts

% change yoy (real terms), adjusted for seasonal & calendar effects

 

Forecasts UBS

 

 

Level*

2016

2017

2018

2019F

2020F

Gross domestic product

704.0

1.7

1.9

2.8

0.8

1.1

Private consumption

370.7

1.4

1.3

1.0

1.0

1.3

Government spending

79.2

1.3

1.2

0.3

1.2

0.8

Capital spending

170.6

2.6

3.6

1.1

0.4

0.7

 

Construction

60.9

-0.2

1.5

1.4

0.3

0.5

 

Equipment

109.7

4.2

4.8

1.0

0.5

0.7

Exports**

 

357.6

6.6

4.0

4.4

3.0

2.5

Imports**

 

261.9

4.4

4.5

2.5

1.6

3.1

Inflation

 

 

-0.4

0.5

0.9

0.4

0.5

Unemployment rate***

 

3.3

3.2

2.6

2.3

2.5

Charts on the Swiss economy

A very useful package of charts may be downloaded here, giving the current economic forecast, trends of the main macro and monetary variables, sectoral structures and developments as well as other aspects of interest regarding the Swiss economy. If you have them printed on transparencies, these charts may fit very well in your presentations.

Download full report

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Global Economy

  • Trade uncertainty continues to be felt via weaker investment spending. A partial trade deal between China and the US would have a positive but limited impact on this. Avoidance of existing trade taxes through supply-chain shifts has increased and should continue to blunt their negative impact. There is some evidence of a stabilization or modest improvement in global trade volumes.
  • Manufacturing-sensitive, investment-focused economies like Germany have already felt the consequences of trade tensions. Economies with a high exposure to global trade or the investment cycle are more at risk than domestic-centered economies. However, recent Asian and European data offer some signs of more stable growth.
  • Labor market strength is continuing in most major economies, supporting consumers' income (via increased employment, increased wages, or both). Global unemployment is near a 40-year low. Domestic demand should limit the drag from the export and investment weakness.
  • However, the longer the downturn in investment continues, the greater the risk it will spill into labor markets and weaken domestic demand.
  • Underlying inflation trends remain relatively benign, with companies absorbing trade taxes rather than passing them on. The effect of strong labor markets should be monitored.

FX

EURCHF

The safe haven stays safe

  • We are keeping our EURCHF forecast for end-2Q20 at 1.08 and expect a return to 1.10 over the rest of the year.
  • We think EURCHF upside will be limited for years given rising domestic opposition to negative rates. The Swiss National Bank (SNB) would likely use any weakness in the CHF to lift rates.
  • The downside potential in EURCHF has risen since the US Treasury put Switzerland on its watch list for currency manipulation. The current risk aversion due to the coronavirus outbreak has triggered the pairing's move lower.

USDCHF

Hardly ruffled by uncertainty

  • We forecast USDCHF to fall to 0.92 by December in response to an anticipated rebound in economic activity that should strengthen most exporters' currencies.
  • USDCHF declined recently after the US Treasury Department put Switzerland back on the watch list for currency manipulators.
  • Market uncertainty due to the coronavirus outbreak only marginally affected the USD relative to the CHF. If, against our expectations, things should worsen, USDCHF is likely to fall as the Fed has more room to lower rates than the SNB.

Real Estate

  • The popular initiative "Mehr bezahlbare Wohnungen" (More affordable homes) demands a higher proportion of non-profit housing.
  • The envisioned goals can only be achieved with a large public-sector financial commitment. The cost-benefit ratio would be unfavorable for most parties.
  • Acceptance of the plans presented would have negative long-term consequences for investors in centrally located real estate.

Sectors

  • In industry, the economic situation deteriorated in the fourth quarter.
  • At the same time, service companies rated the business situation as good.
  • While the earnings situation of the former improved slightly again at the end of the year, the pressure on margins increased once more for the latter.

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