Switzerland Economy

Switzerland Economy


  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax system

Basic data

The Swiss economy grew faster in 2021 than in the last 14 years. However, rising inflation and the war conflict in Ukraine have the effect of slowing down this positive trend. However, it can be assumed that the direct effects of the Ukrainian conflict on Switzerland will not be as great as in other countries due to its limited economic ties to Russia and Ukraine. Moreover, these facts catch the Swiss economy already in relatively good condition. The domestic economy is recovering. The labor market is also developing favorably: employment is growing and the unemployment rate is returning to the pre-pandemic level. In addition, the widespread cancellation of coronavirus measures gives reason to expect a strong recovery in the service sector.

In 2021, the Swiss economy took a significant step to overcome the coronavirus pandemic, its GDP grew by 3.6% during 2021. This is the strongest GDP growth since the outbreak of the financial and economic crisis in 2007, the growth of which was significantly contributed by the export of products from the chemical and pharmaceutical industry (especially vaccines) and record sales in retail. GDP growth of 3% is expected for 2022 and 1.9% for 2023. The unemployment rate, which stood at 3% in 2021, is gradually falling to pre-pandemic levels. According to predictions, a further revival of the labor market is expected, and with it a drop in the unemployment rate in 2022-2023 to 2.4%.

The measures to manage the pandemic also led to high demands on federal finances and an increase in indebtedness in 2021 (Switzerland’s gross debt was CHF 108.6 billion at the end of 2021; the gross debt quota was 15% of GDP). Compared to 2020, this is an increase of CHF 5 billion. Despite this increase, Switzerland’s debt is still relatively low in international comparison thanks to the debt brake. In 2021, according to the IMD, which compared 64 world economies, Switzerland ranked 1st in the competitiveness ranking.

According to cheeroutdoor.com, the Swiss economy is highly dependent on foreign trade. Approximately two-thirds of imported goods come from EU countries (67%). The largest share is made up of goods from the chemical and pharmaceutical industry, machinery and equipment, food and metal products, electronics, vehicles and furniture.

The most important economic sector in Switzerland is services, especially business and finance. The service sector accounts for approximately 74% of Switzerland’s GDP and represents 1/4 of total exports and almost 1/3 of total imports. From the point of view of domestic consumption, the importance of the service sector is even more evident, as it accounts for more than 70% of Swiss GDP overall.
The industry sector accounts for approximately 25% of Switzerland’s GDP; the industrial sector is dominated by chemical and pharmaceutical as well as engineering and metalworking industries.
The agriculture sector contributes less than 1% of GDP.
A non-negligible component of the Swiss economy is also the tourism industry.

Switzerland is known for the production of fine mechanical products (wristwatches) and devices, which together with the products of the chemical and pharmaceutical industry constitute the most important export item. It also manufactures medical technology and food products.

Pointer 2019 2020 2021 2022 2023
GDP growth (%) 1.1 -3 3.6 3 1.9
GDP/population (USD/PPP) 73,645.60 72,162.90 76,620.00 81,660.00 84,740.0
Inflation (%) 0.4 -0.7 0.6 1.1 0.6
Unemployment (%) 2.3 3.1 3 2.4 2.4
Export of goods (billion USD) 243.8 240 283.8 270.7 268.4
Import of goods (billion USD) 206.4 194.2 219.5 221.2 219.3
Trade Balance (Billion USD) 75.5 62.1 99.4 78.3 77.6
Industrial production (% change) 4.5 -3.5 8.5 4.7 2.9
Population (millions) 8.6 8.7 8.7 8.8 8,9
Competitiveness IV.63 III.63 I.64 ON ON
OECD export risk ON ON ON ON ON

Source: EIU, OECD, IMD

Public finance and state budget

Public finance 2021
State budget balance (% of GDP) -2.3
Public debt (% of GDP) 29.6
Current account balance (billion USD) 47.7
Taxes 2022
AFTER 8.5% / 7.8% (effective)
F.O from 0.77%
max 11.5%
VAT 7.7% standard VAT rate
2.5% reduced rate
3.7% special rate

In order to prevent the country from becoming indebted, the Swiss agreed to a so-called debt brake in a referendum in 2001. It was subsequently enshrined in the Swiss constitution that the income and expenditure of the federal budget must be maintained in a long-term balance. If expenses exceed income in a given year, it must be compensated in subsequent years so that the budget for the business cycle is balanced. It is clear, however, that the debt incurred due to the need to finance measures to combat the pandemic is and will be high by Swiss standards.

In 2020 and 2021, the coronavirus pandemic in Switzerland led to the biggest economic crisis in the last decade and left deep traces in public finances as well. Record-high deficits mainly affected the federal level. Due to the simultaneously declining fiscal revenues of the cantons and municipalities, the burden on public budgets remains very high in 2021. The public finance deficit is tentatively 0.7% of GDP.
Switzerland’s gross debt at the end of 2021 was CHF 108.6 billion; the gross debt quota was 15% of GDP. Compared to 2020, this is an increase of CHF 5 billion. Net debt, i.e. gross debt excluding financial assets increased by CHF 6.0 billion compared to 2020 to CHF 7 billion.

Due to the revival of the Swiss economy, the financial situation of public budgets should normalize in 2022. The additional profit distribution of the Swiss National Bank and the solid growth of taxes in the cantons and municipalities contribute significantly to the positive development in the state sector. Thanks to the high positive financial balances of the cantons and social security funds, a public finance surplus of 0.4% of GDP is expected.

Risks: The greatest uncertainty for Swiss public finances is now the possibility of a worsening of the economic situation as a result of the conflict in Ukraine, sharply rising energy and food prices, growing shortages in supply and the strengthening of the Swiss franc, and the associated increase in government spending (e.g. on humanitarian aid, fuel and energy ). Global price pressures could lead to higher inflation in Switzerland as well. Forecasts of the development of public finances for the coming years are therefore difficult.

Banking system

The banking sector is one of the traditional and most successful sectors of the Swiss economy, Switzerland is one of the world’s leading financial centers and a leader in cross-border asset management. The Swiss banking sector offers first-class framework conditions for technological innovation and is regulated in an exemplary manner on an international scale. Statutory regulation is supplemented by professional standards and recommendations that banks determine as part of self-regulation.

When assessing the stability of the banking sector, the Swiss National Bank (SNB) focuses mainly on large banks (Credit Suisse and UBS) and domestic credit banks. In Switzerland, active banks are subject to the Federal Act on Banks and Savings Banks, the so-called Banking Act (Bankengesetz, BankG).

At the end of 2020, there were a total of 243 banks operating in Switzerland (source: Swiss National Bank SNB – the most up-to-date data), i.e. 3 banks less than in 2019, and their total balance sheet amounted to CHF 3,467.3 billion (by 4, 5% more than in 2019). This increase is due to a 26.1% increase in cash and cash equivalents.

The largest banks are UBS – Union Bank of Switzerland and Credit Suisse, which are characterized by a connection with the world economy and international financial markets, a wide network of branches and subsidiaries abroad. In Switzerland, they mainly deal with private property management, credit and mortgage business. These two banks account for 55% of the total assets of the top 30 Swiss banks, with the other 28 larger banks sharing 45% of the remaining assets. The third largest bank is the Raiffeisen Schweiz group. It creates framework conditions for the business activities of regional Raiffeisen banks (e.g. in the field of IT, infrastructure and refinancing), supports them and provides them with consulting services. It is also responsible for liquidity and capital management and refinancing, assisting in the establishment of companies. It is followed by Zürcher Kantonalbank as the leading universal bank of the canton of Zurich. It is represented only in its canton, but also operates on a national and partly international level. It operates in mortgages and loans as well as in the investment and pension sectors and is one of the five largest asset managers in Switzerland. The fifth largest financial institution is Postfinance, a subsidiary of Swiss Post. It focuses on national and international payment transactions, but also offers services in the areas of savings, investments, pensions and financing.

Tax system

The Swiss tax system is complicated mainly due to the federal organization of the country. In Switzerland, taxes are collected at three levels: the state (Bund), cantons and municipalities. Each of the 26 Swiss cantons has its own tax law and tax revenue, it taxes income, assets, property, capital and income from land, etc. differently. All 2,250 Swiss municipalities are also authorized to collect municipal taxes either at their own discretion or according to the basic cantonal rates. Taxes are also collected by the state, although it receives a greater part of its fiscal income from other sources, primarily from VAT, stamp duty, customs duties, as well as extraordinary consumption taxes. As an OECD member country, Switzerland is participating in the search for a multilateral solution to tax the digital economy.

Federal personal tax rates range from 0.77% (for single taxpayers) and 1% (for married couples), up to a maximum tax rate of 11.5%. Individuals with a taxable income of less than CHF 17,800/year and married couples with a taxable income of less than CHF 30,800/year are exempt from federal tax.

Legal entities are usually taxed both by the state (this is a direct federal tax) and also by cantons and municipalities. In most cantons, legal entities also pay church taxes. The federal corporate tax rate is 8.5% of net income, with an effective tax rate (ETR) of 7.8%. For companies that are subject to normal taxation, the combined ETR, taking into account federal and cantonal/municipal income tax, is between 12% and 22%, depending on the company’s seat. In most cantons it ranges between 12% and 14%.
For 2022, the standard VAT rate is 7.7%, which is the lowest VAT rate in Europe. A reduced rate of 2.5% applies to certain types of goods (food, books, magazines or medicines) and services. Most banking and insurance services, residential real estate, education, health and regulated casinos are exempt from tax. A special rate of 3.7% applies to hotel and accommodation services.

No significant changes to the tax system are expected for 2022.

Switzerland Economy