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The Powerhouse of Central Switzerland

New Credit Suisse Study on the Economic Region of Zug

In the competition between the various Swiss cantons, the economic region of Zug has attracted particular attention. Thanks to its consistent locational policy, Zug has led the Credit Suisse locational quality indicator for years. Zug's success is reflected in its high income and productivity numbers and its dynamic population development. Zug has exploited its favorable situation, transforming itself from an agricultural canton into a successful national - and even international - economic center whose influence stretches throughout Central Switzerland. Coupled with the broad range of specialized services it offers companies, the canton has strong appeal for international firms.

The small geographical area covered by the canton of Zug is in stark contrast to the role it plays in the Swiss economy. The unique national combination of its low tax burden, a central location and large pool of qualified staff makes Zug virtually ideal as a location for business and a place to live. The charming scenery around Lake Zug and Ägerisee round off the appeal of this attractive location that has gained prominence well beyond national boundaries.

Zug's Locational Advantages Are Virtually Unbeatable
There have been many attempts to imitate the successful regional policy pursued by the canton of Zug, particularly in relation to fiscal strategy, in recent years. Several cantons in Central Switzerland and the two Appenzell cantons are both aiming to position themselves as attractive low-tax business locations. However, Credit Suisse economists believe it would be wrong to attribute the canton of Zug's success solely to its low tax burden. The combination of a large highly qualified workforce and its excellent transport links help create the unique conditions enjoyed by this canton. Other success factors - though more difficult to measure - strengthen Zug's position: besides the attractive scenery, these include the quality and effectiveness of public and municipal services.

A Global Economic Hub
Zug's international influence is reflected in its range of industries: Zug plays host to various multinational companies who have set up their headquarters and pan-European sales offices there. The frequently cited trade in commodities sees goods transported from Zug that never cross Swiss borders. Thanks to a number of well-known companies, Zug has become one of the leading trading centers for petroleum and mining products. In spite of general perception to the contrary, Zug has also been able to maintain its position as a location for high-tech industry. With its rapidly growing workforce, medical engineering is at the forefront of such developments. By focusing on less price-sensitive goods from the pharmaceutical and medical engineering industries, Zug's exports have suffered less from the franc's current strength. Overall, despite its international focus, Zug's economy has largely escaped the turbulence of the global economy. The location of Zug is now benefiting from the pick-up in global demand, and it is once again experiencing considerable staff shortages.

Demographics: International Immigration and Domestic Departures Offset One Another
Following decades of strong population growth, the canton of Zug is now showing initial signs of reaching saturation point. International immigration remains high, but Zug has recorded net falls in migration since 2006 compared with neighboring cantons. The incoming numbers from abroad are now only just enough to offset those moving to other cantons. The current low-interest environment and Zug's high real estate prices have prompted many middle-income households to fulfill their dream of owning their own home in one of the neighboring cantons. What appears unusual for the residential property sector in the canton of Zug corresponds to what has been happening in other major Swiss areas for some time. It is unsurprising therefore that public measures are currently also being taken in Zug to encourage cheaper residential real estate.

Real Estate Market: Lack of Residential Property Ownership
The general perception of the Zug real estate market is frequently one of high, often international demand in the high-price and luxury segment. It is the case that record-high prices in Swiss terms are being paid for certain properties. However, the overall market is clearly more differentiated. Investors have identified the growing demand for rental apartments and this segment has expanded considerably. Yet, the growth in supply cannot be regarded as a panacea to counter rising prices, as the main driver of this trend is the lack of available building land. In relation to other central locations, Zug has clearly been comparatively sparing in how it has used this resource. Credit Suisse's economists therefore do not expect a strong correction in prices on Zug's real estate market. All segments are predominantly supported by household demand attributable to high locational quality; speculative inflows play a more minor role.