Guide to Currency Trading: Developed Countries: Switzerland

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Economic Indicators for Switzerland

Economic Overview

Switzerland is a prosperous and stable modern market economy with the 30th largest overall GDP, but the tenth highest per capita GDP. After annual GDP growth dropped between 2001 and 2003, it experienced small gains in 2004 and 2005. Even with the drops in GDP, unemployment has remained at less than half the European Union's unemployment average. Switzerland's low unemployment rate and highly skilled labor force contribute to the country's steady economic success.

Switzerland is viewed as a safe haven for investors, because it has maintained a degree of confidentiality through the Swiss banking law, which regulates what types of information the banks can disclose. As a result, Switzerland is the world's foremost destination for offshore capital and investors. This has created a large and highly advanced banking and insurance industry that employs about half of the population and comprises more than 70 percent of the total GDP. Since Switzerland's financial industry thrives on its safe haven status and renowned confidentiality, capital flows tend to increase during times of global risk aversion.

Germany is Switzerland's most important trade partner, followed by the U.S., France and Italy. Major exports include machinery, chemicals, metals, consumer products and agricultural products. The country has a trade surplus of US$13.6bln, one of the highest in the world, and a national debt of US$856bln.

Economic Policy Makers and Tools

The Swiss National Bank (SNB) was established in 1907 as Switzerland's independent central bank. The Swiss National Bank strives to maintain price stability, while taking economic development into account. Like other countries, the SNB values price stability for long-term growth and prosperity. The SNB equates price stability with no more than a 2 percent increase in the national consumer price index.

The Swiss National Bank closely monitors exchange rates because excessive strength in the Swiss franc causes inflation. This is especially true in environments of global risk aversion, when capital flows into Switzerland tend to increase. As a result, the SNB typically favors a weak franc, and does not hesitate to intervene in the market.

The SNB's quarterly bulletin includes a monetary policy report for the quarterly assessment of the governing board. The report discusses monetary policy decisions and provides an inflation forecast for the next three years. In its annual financial stability report, released in June, the SNB presents its assessment of the stability of the Swiss banking sector and financial market infrastructure and highlights observable trends in the banking system, financial markets and the macroeconomic environment. The main purpose of the report is to draw attention to weaknesses or imbalances that could threaten the stability of the system.

The Swiss National Bank conducts open market operations to influence monetary policy. Repurchase (repo) transactions are the most important open market tool used by the SNB. With this type of repo, a financial institution sells securities to the SNB, and agrees to repurchase the same type and quantity from the SNB at a later date. The bank pays interest for the term of the agreement. If there are any price fluctuations in the securities, the bank or the SNB must deliver additional securities or cash. Repo terms range from one day to a few months. Other open market tools include foreign exchange swaps and advances against securities, otherwise known as Lombard loans (a common European term for securities-based lending).

In order to implement monetary policy, the SNB sets an interest rate target range for the London Interbank Offered Rate (Libor) rate for three-month Swiss franc (CHF) deposits. The SNB uses repos to supply banks with more or less funds to ensure that the Libor rate remains within the target range. The SNB sets a target range for Libor of one percentage point within which the rate can fluctuate. An increase of the target range signals a tightening of monetary policy, while a reduction signifies an easing of the policy.

Characteristics and Trends

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* The "Average Bid/Offer" listings above are illustrations of how the average prices or spreads of a listed currency pair may appear. They do not, however, reflect the spreads or bid/offer prices available to forex traders through Global Forex Trading, Division of Global Futures and Forex, Ltd.

NOTE: The information in this publication is taken from publicly available sources and is subject to change without notice. The publisher assumes no responsibility for inaccuracies or changes in the data. The information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this guide for your general information. Global Forex Trading will not be responsible for any losses incurred on investments made by readers and customers as a result of any information contained in this guide. Global Forex Trading does not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.