Macroeconomics Switzerland

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PART A
Introduction
The country that we have chosen for analysis is Switzerland. The economy of Switzerland is one of the world's most stable economies. Its policy of long-term monetary security and political stability has made Switzerland a safe haven for investors, creating an economy that is increasingly dependent on a steady tide of foreign investment. Switzerland has achieved one of the highest per capita incomes in the world with low unemployment rates and a low budget deficit. The service sector has also come to play a significant economic role. *Source: Wikipedia

Switzerland in brief
* Switzerland’s Real GDP

*Source: World Bank

Swiss| Year 2004| Year 2005| Year2006| Year 2007| Year 2008| Year 2009| Year 2010| Real GDP in US$ (based on 1990 price)| 362,990,618,832| 372,475,755,390| 391,233,703,828| 434,116,631,637| 503,215,464,683| 492,261,743,767| 527,919,933,356| Growth Rate| 2.5%| 2.6%| 3.6%| 3.6%| 2.1%| -1.9%| 2.7%|

From the data available, Switzerland’s strong economic growth had done well for the past few years. From 2004 to 2008, real GDP had increased continuously, especially in year 2006 and year 2007, making a 3.6% growth.

However, its economic growth slowed down and went into negative growth when the global crisis hit in 2009. The economy entered its first recession in six years as a global slowdown strangled exports and companies slashed spending. The economic growth rate was -1.9%, which was dragged down mostly by a huge fall in Foreign Trade and Capital Investments.

Swiss Economy: Declining Foreign Trade and Capital Investments - credit-suisse.com (09.01.2009)The Swiss economy still appeared to be robust until the end of October 2008. But in November, order book levels in industry literally collapsed overnight. Since then, the Swiss economy has no longer been able to escape the significant downward trend throughout the world. The macroeconomic contraction is expected to affect all demand components except for consumer spending. The Credit Suisse economists expect an overall decline of 0.6% in GDP during 2009. 

The export sector is the most directly impacted by this negative development. Exports of goods will decline as a result of the recession in the purchasing countries, while those of financial services will be dragged down in the wake of the financial crisis. The increased value of the Swiss franc is likely to create additional problems for tourism in 2009. While exports to countries with continuing growth, such as China, will provide a sort of economic safety net, their share of overall exports is still not large enough to compensate for declining exports to the US and Europe. Switzerland's export volume is therefore set to fall by a total of 2.3%|

The latest available data showed Switzerland climbing out of the recession and back into the expansion phase of the business cycle. Swiss’s economic growth rate was 2.7% in year 2010, in line with the recovery in the global economy. The recovery was broad based across all key sectors of Switzerland economy, especially wholesale & retail trade. During the recession period, inflation would tend to decrease and unemployment would increase. Hence, price level as well as real GDP, tend to fall during economy down term. Fall in net exports X↓ and investments I↓ lead to the fall in aggregate demand (AD=C+I+G+X-M). Assuming the starting point at full employment, AD curve will shift left because of the fall in net exports and capital investment.

Global economy finally recovered in year 2010. During the recession, Switzerland government tried very hard to bring up the economy as the Swiss central bank used expansionary monetary policy by lowering the reserve requirement to close the recessionary gap.

SBN cuts rate by 100bp- Published: 11/20/2008 By: TradingEconomics.com, Bloomberg.comSwitzerland's central...
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