Posted on 15 September 2012
Even though other European economies are struggling with the current economic crisis, Switzerland looks set to come through this phase relatively unscathed. This is due to a number of factors, as its economy has continued to expand for 12 consecutive quarters, and its unemployment rate is just 2.7% compared to an average European rate of 10%.
Demand for luxury goods such as cars and watches is still strong, as car sales increased 12% during the first six months of this year, while the rest of the European Union saw an 11% decline.
Even though Switzerland has few natural resources, it’s still a wealthy country as it’s known for its large banking centre and for its business friendly legislation. Its income per capita is around $80,000, and during the last couple of decades the government has taken extensive measures to stabilise its economy. This led to a boom in the country’s property market, especially as the Swiss National Bank has kept interest rates very low.
However some experts are concerned that the property market may be overheating especially in Geneva and Zürich, and that any rise in interest rates combined with lower economic growth could lead to some borrowers defaulting on their mortgages.
In response to this risk the Central Bank introduced a new regulatory toolkit a couple of months ago to help counter the rise in property prices. It gives the Central Bank the ability to call on a countercyclical capital buffer that would help safeguard banks residential mortgage portfolios. As property prices seem to be cooling, it is unlikely that the Central Bank would seek to activate this buffer before next year.