The Swiss Economy’s Resilience to Crisis and Its Lessons for Austria

Switzerland and Austria, two small, open economies, have emerged fairly unscathed from the financial and economic crisis. Switzerland, above all, is notable for its relative stability. Domestic demand proved to be rather resilient, and in Switzerland, foreign trade performance also contributed to stability. At the same time, the important internationally oriented financial sector of both countries, a growth engine during good times, came to represent a risk factor during the crisis. The key factors in explaining Switzerland’s resilience to the crisis are the country’s high degree of economic diversification and its specialization on/in products that are fairly robust to cyclical fluctuations. Like in Austria, a stable labor market and the absence of a real estate bubble preceding the crisis supported the economy. The stability of credit supply and the ultimately small impact of the financial crisis thanks to swift and decisive government action played an important role as well. Economic policymakers also made an important contribution to stability by reducing key interest rates, adopting economic stimulus packages, taking measures to stabilize the labor market and, above all, launching bank rescue packages to safeguard financial stability. Preventing financial crises will be a great challenge for both countries in the coming years. In Switzerland, the too-big-to-fail aspect represents a major issue, considering that the total assets of the two biggest Swiss banks – UBS and Credit Suisse – each are a multiple of Swiss GDP.