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Switzerland Country Risk Report Q2 2015

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
EU Relations To Overshadow Election Outcome
Switzerland's federal election to be held in October is set to result in another plurality of the nationalist Swiss People's Party. However,
more important than the result is the Federal Council's future relations with the EU. The 2014 referendum capping immigration has yet
to be implemented, and when done could see Switzerland frozen out of a number of important EU agreements.
Table: Politic al Over vie w
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
CHF Shock To Slow Short-Term Growth
The rapid appreciation of the Swiss franc in January 2015 will be a negative shock to Switzerland's highly open economy in the short
term, and will hasten a transition away from export-led growth toward a higher contribution of private consumption. We forecast
Switzerland to avoid a contraction of real GDP 2015, expanding by 0.4%, and 1.2% in 2016.
TABLE: GDP By Expe nditure
Monetary Policy
FX Intervention Will Continue
The Swiss National Bank (SNB)'s decision to abandon its defence of the CHF1.20/EUR floor and cut interest rates deeply into negative
territory has left it with few tools left to stimulate domestic demand or inflation, both of which will see a negative shock in the coming
quarters on the back of rapid franc appreciation. We believe the SNB will continue intervening to prevent excessive franc appreciation,
albeit without announcing a formal FX target.
Table: Monet ary Polic y
Exchange Rate Policy
Gradual CHF Depreciation From Overvalued Levels
The Swiss franc will trade in a narrow range against the euro in 2015 as the Swiss National Bank continues intervening to prevent
excessive appreciation. Over the longer term, the franc will gradually depreciate from overvalued levels as safe haven demand
eases.
Table: BMI Curre ncy Forec ast
Balance Of Payments
CHF Volatility To Accelerate External Rebalancing
The removal of the CHF/EUR floor by the Swiss National Bank will hasten a rebalancing of Switzerland's economy towar ds greater
private consumption and accelerate a narrowing of its massive current account surplus. That said, the surplus will remain relatively
robust over the coming years, falling to 6.1% of GDP in 2016 from an estimated 9.4% in 2014.
Table: Balance Of Payme nts
Fiscal Policy
Debt Rule To Trigger Higher Expenditures
Higher fiscal expenditures in 2015 will support economic growth amidst the destabilising impact of rapid Swiss franc appreciation. That
said, the Swiss government's conservative fiscal policy will remain anchored by a constitutional debt brake and we see no risks to the
country's robust sovereign profile.
Table: Fisc al Polic y
Chapter 3: 10-Year Forecast
The Swiss Economy To 2024
Steady Growth To Prevail Over Long Term
We expect steady Swiss economic growth over our forecast period despite the global macroeconomic headwinds. We forecast
Switzerland's real economic growth to average 1.3% over our forecast period, supported by solid fundamentals underpinning the
domestic economy.
Table: Lo ng-Term Macroeco nomic Forec asts
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
tA BLE: Developed States - Labour Market Ris k
Table: Developed States - Logistics Ris k
Table: Developed States - Crime And Securit y Ris k
table: Developed States - Trade And Investme nt Ris k
Chapter 5: Key Sectors
Pharmaceuticals & Healthcare
Table: Pharm aceutic al Sales , Historic al Data And Forec asts
Table: Healthc are Expe nditure Tre nds , Historic al Data And Forec asts
Other Key Sectors
Table: Telecoms Sector Ke y Indic ators
Table: Infr astructure Sector Ke y Indic ators
Table: Autos Sector Ke y Indic ators
Chapter 6: BMI Global Assumptions
Global Outlook
Weaker EMs To Weigh On Growth
Table: Glob al Assumptio ns
Table: Developed States , Real GDP Gro wtH, %
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
Table: Emergi ng Markets , Real GDP Gro wth , %

Switzerland Country Risk Report Q2 2015

Core Views

Switzerland's growth trajectory over the medium term will be increasinglypowered by consumer spending, with the potential forthe government to step in and boost growth in the event that thesituation in the eurozone puts a sharp break on Swiss growth.

Although the Swiss National Bank's removed its CHF1.20/EUR flooron January 15, it will continue to intervene in FX markets in orderto prevent excessive franc appreciation. Beyond the next severalquarters, the franc will begin to gradually depreciate from overvaluedlevels.

A narrowing of Switzerland's large current account surplus will gathersteam in 2015 on the back of a stronger franc, but the surplus willremain sizeable over the coming years.

Major Forecast Changes

We have revised our 2015 real GDP growth forecast to 0.4% from1.7% previously, on the back of the negative impact of rapid Swissfranc appreciation on business confidence and export growth.


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