IMF praises Swiss economic management
"The economy is performing well. The expansion moved into its fourth year with above average growth and employment, and few signs of inflation," the IMF's Executive Board said in a statement following its regular review.
Switzerland's economy grew by 2.7 percent in 2006 and is expected to expand by a further two percent in 2007, according to the IMF.
The IMF commended the Swiss authorities for their "prudent economic management and sound policy frameworks" and also praised the Swiss National Bank (SNB) for keeping inflation under control in recent years.
Inflation reached just one percent in 2006 and is expected to be slightly lower in 2007, the IMF said. The IMF praised the central bank's communications strategy and rolling three-year inflation forecast but stressed that monetary policy "will need to remain flexible to respond appropriately to inflation signals."
"With the economy possibly transitioning to a higher level of potential growth, and absent signs of inflation ... the SNB should continue to monitor economic conditions closely, and be prepared to adapt policy as necessary," it added.
The IMF also touched on the recent weakness of the Swiss franc, echoing Swiss bankers in saying that it made the currency a favorite for carry-trades in eastern Europe, given its low volatility and interest rate.
These carry-trades "could be temporarily weakening the franc to a level below its equilibrium," the IMF said, adding that they should be closely monitored to limit related risks.
In general, the IMF said Switzerland's main challenges going forward were to make best use of the opportunities provided by low inflation, strong employment growth and flexible labor markets, to further strengthen potential economic growth.
It also urged authorities to address long-term structural and fiscal issues caused by Switzerland's ageing population, such as funding social security and the state of the workforce.