Switzerland

Risk assessment

Growth led by household consumption and business investment in 2013

Household consumption will be less sustained in 2013, but will nonetheless remain the main contributor to growth, which will accelerate very slightly. Very low interest rates, plentiful liquidity, the undeniable vigour of immigration and expectations of a moderate return to inflation will offset the slight wage increases and the noticeable rise in unemployment. Investment in housing is expected to increase further at the risk of feeding sharp price rises. But the prudential macro- and micro-economic measures introduced last year by the Swiss National Bank (SNB) should help keep the growth of mortgage loans under control. Moreover, though heavily indebted (over 155% of disposable income) net household wealth is four times higher.
After slowing noticeably last year, productive investment will recover but the high level of inventories at the end of last year and the erosion of their capacity utilisation rate will force businesses to be prudent. This trend will be strengthened by the prospect of a cyclical trough in Germany, the number one trading partner of Swiss businesses (20% of sales in 2011), in France (7%), a slowdown in the United Sates (10%), a slight recovery in the United Kingdom (5%) and a continued recession in Italy (8%).                                                         

Swiss franc successfully tied to the euro and public finances prudently managed

For the second consecutive year, the current account balance will make a negative contribution to the economy. The setting by the SNB of a floor to stem the appreciation of the Swiss currency was maintained in 2012 and this policy will probably be followed again in 2013. Even though businesses believe that this floor should be lifted, the bank’s support has given them the advantage of predictability and enabled them to limit the contraction of exports. Market shares gained in Asia (Hong Kong and Singapore) will, however, not compensate for shrinking demand from peripheral countries in the eurozone and the slowdown, since the third quarter, in the countries at the heart of the Monetary Union. Imports will grow more quickly than exports, which will contribute to reducing the current account surplus. 
The strength of the economy will enable the Federal State to stabilise its tax revenues while slightly reducing its spending, thus limiting the decline in budget surplus. Public debt is expected to fall to around 33% of GDP. 

The questioning of the banking model

The Swiss banking sector has long benefitted from its tax-free management of the assets of non-residents. This model is today being questioned by international tax standards and the various bilateral agreements signed by Switzerland with its major partners. This has led to a decline in the management of this category of assets and a reduction of banks’ gross margins. In this context, competition between banks, as well as restructuring, is expected to intensify. Moreover, despite the improvement of their balance sheets, the two big international banks constitute a risk for the country’s financial stability. They represented 52% of banking assets and over 250% of GDP in 2011 and their capacity to absorb potential losses is still weak.

Margins of exporting businesses under pressure

To maintain their market share, exporting firms – apart from the watch- and clock-making sectors – will probably have to make more market concessions in 2012 in terms of selling prices in Swiss francs. This concerns the paper, textile and interior furnishing sectors (very vivid competition since the start of the crisis), machinery and electronic products (sluggish investment on the part of many trading partners) and, to a lesser degree, chemistry-pharmacy and plastics. The food processing industries, for their part, will be affected by high raw materials prices while tourism will continue to face serious difficulties. The sectors devoted to household consumption are expected to continue benefitting from the healthy state of private spending.
However, businesses are likely to have the necessary resources to cope with the cyclical trough since their profits are at a high level (around CHF110bn or 18% of GDP). This situation is, moreover, reflected in the 2% reduction in bankruptcies over the last ten months of 2012 (compared with the same period in 2011) and by the good performance in Coface’s payment experience.

Payment incident index

Insolvency trends

MEANS OF PAYMENT AND COLLECTION METHODS

Bills of exchange and cheques are not commonly used owing to prohibitive banking and tax charges; the stamp duty on bills of exchange is 0.75% of the principal amount, for domestic bills, and 1.5% for international bills.

Similarly, commercial operators are particularly demanding as regards the formal validity of cheques and bills of exchange as payment instruments.

Domestic and international payments are commonly made by bank transfer, especially via the SWIFT electronic network to which the major Swiss banks are connected and which provides speedy and efficient processing of payments at low cost.

The Swiss legal system presents technical specificities, as follows :

-The existence of an administrative authority “Enforcement and Bankruptcy Office” (e.g. Office des poursuites et des faillites or Betreibungs und Konkursamt) in each canton which is responsible for executing court orders and whose functioning is regulated by federal law.

Interested parties may consult or obtain extracts of the Office’s records.

-The issuance of a new unified civil procedure code, set up by a commission of experts, approved by the Federal Council and which became effective as of 1^st January 2011.

The enactment of this code entails the repeal of the 26 cantonal procedure laws which were an obstacle to a safe and timely justice.

However a lawsuit requires the assistance of a lawyer familiar with the court organisation of the place where the case is instituted, as well as with the language to be used to conduct the litigation (French, German or Italian).

This Act states several sorts of procedures depending on the content or the monetary value of the dispute and stipulates that the parties must make an attempt at conciliation or submit to mediation, before requesting full trial.

The debt collection process commences with the issuing of final notice preferably by recorded delivery (thus making it possible to accrue past-due interest) asking the debtor to pay, within two weeks, the principal amount increased by past-due interest calculated – unless otherwise agreed by the parties – at the bank discount rate applicable at the place of payment.

In the absence of payment, the creditor will submit a duly completed and signed petition form (réquisition de poursuite) to the Enforcement and Bankruptcy Office which then serves the debtor with a final order to pay within twenty days.

While very easy to use by creditors, that procedure nonetheless permits debtors to oppose the order within ten days of being served, without having to specify grounds.

In such case, the only alternative for creditors is to seek redress through the courts.

Conversely, where a seller holds unconditional proof of debt signed by the buyer (any original document in which the buyer recognises his debt, bill of exchange, cheque, etc.), he may request the temporary lifting of the debtor’s opposition (main levée de l’opposition) without having to appear before the court.

This is a simplified procedure, quick and relatively easy to obtain, in which the court’s decision is based upon the documents submitted by the seller.

Once this lifting order has been granted, the debtor has 20 days in which to refer the case before the judge to obtain the debt’s release (libération de dette) and, in turn, obtain an executory order.

That entails initiating a formal and now unified procedure – including a written phase and an oral phase with possible examination of witnesses during court hearings – lasting from one to three years according to the canton.

Legal costs vary widely depending on the rates charged by the various cantons.

Once the court hands down a final ruling, upon request of prosecution, the Enforcement and Bankruptcy Office delivers an execution order or, in the case of traders, a winding-up petition (commination de faillite). In all cases, the law decides which measure – execution order or winding-up petition – is applied.

Either a court of first instance or a district court hears legal procedures. Commercial courts, presided by a panel of professional and non-professional judges, exist in four Germanic cantons : Aargau, Berne, Saint-Gall, and Zürich.

Once an appeal has been lodged with the cantonal court, as a last resort for claims exceeding 30,000 Swiss francs (CHF), cases are heard by the main federal judicial institution, the Swiss Federal Court (Tribunal fédéral Suisse or Schweizerisches Bundesgericht), in Lausanne – the other federal institutions are the Federal Criminal Court (Tribunal pénal fédéral or Bundesstrafgericht), located in Bellinzone, which was set up in April 2004, and the Federal Administrative Court (Tribunal administratif fédéral or Bundesverwaltungsgericht), which began operations in January 2007, soon located in Saint-Gall.