Reviving productivity growth and improving labour market participation key for sustained recovery from Covid, says OECD

20/01/2022 – Switzerland has proven very resilient to the COVID-19 crisis thanks to a diversified economy with relatively low reliance on hospitality and entertainment and with significant fiscal space to support households and firms.

Reviving productivity growth and reinvigorating the labour market will be key to support the recovery and maintain high living standards, according to a new OECD report.

The latest OECD Economic Survey of Switzerland says the crisis has heightened the need to lower barriers to competition and trade, develop skills in the workforce, strengthen the pension system and improve labour market participation by helping more older, low-skilled and female workers into jobs and reducing gender gaps in working hours. While Swiss labour productivity is among the highest of OECD countries, productivity growth – vital to counter the impact of an ageing population on GDP per capita – has slowed over the past three decades.

© OECD Economic Surveys: Switzerland 2022 - The Swiss economy has shown resilience through the COVID-19 crisis (graph)“The Swiss economy has again shown strong resilience in the face of a global crisis. Its recovery is on track, but the pandemic continues to create challenges and uncertainties for Switzerland as it does in countries all around the world,” OECD Secretary-General Mathias Cormann said, presenting the Survey in a virtual event alongside Swiss Federal Councillor Guy Parmelin. “To ensure a strong and sustainable recovery it is important to expand labour market participation and to sustain vibrant international agreements, which would foster competition, trade and investment.”

Swiss GDP shrank by just 2.5% in 2020 – a smaller contraction than in most other economies – and it recovered to pre-crisis levels by mid-2021. The Survey projects growth of 3.0% in 2022. Inflation has risen but remains moderate and Switzerland’s fiscal position remains strong, with a public debt-to-GDP ratio expected at 47% for 2021. With continued rises in house prices, a close monitoring of risks should be maintained to sustain financial stability.

As a small open economy, Switzerland is sensitive to international developments including trade and supply chain disruptions. With the omicron variant clouding prospects for a rapid exit from the pandemic, efforts should continue to expand vaccinations, with an emphasis on older and at-risk citizens. Policy support should continue to target those sectors and workers still facing restrictions, the Survey says.

It is vital to lower international and domestic barriers to competition. This includes the need to ensure regulatory and competitive neutrality for state-owned enterprises and to free competition across cantonal borders. Certain sectors, notably agriculture and some services, are shielded from international competition. The Survey calls for action to reduce these barriers and to foster the partnership with the EU to sustain access to its market. There is also scope to improve the business environment by lowering the administrative burden on start-ups and making firm entry and exit easier.

Efforts to improve labour market participation should focus on removing disincentives for older workers to remain in employment and for mothers to work longer hours, including by expanding affordable childcare provision and job search support for older people. After age 65, Switzerland’s otherwise high employment rate shows a steep decline. Fixing the retirement age at 65 for men and women and then linking it to increases in life expectancy, as well as improving incentives to work beyond that age, could ease spending pressures and help sustain growth as the population ages. The high percentage of Swiss women in part-time work – 45% versus an OECD average of 25% – could be reduced notably by increasing childcare facilities to lower their costs and revising financial disincentives in the tax and benefit system for second earners to work.

Lastly, the Survey notes that while Switzerland has successfully decoupled economic growth from domestic greenhouse gas emissions and material use, it will need to implement further measures to meet its target of net-zero greenhouse gas emissions by 2050, including reassessing some of the exemptions on carbon taxes. There is also room to better align investment portfolios with climate goals and to foster eco-innovation.

See a Survey Overview with key findings and charts (this link can be used in media articles).

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