Switzerland ranks tenth among the world's investment recipients. Every tenth job here is owed to direct investment from abroad. The economists at Credit Suisse have identified the key factors for locational appeal by means of an analysis of 245 bilateral investment relationships between 19 countries. The analysis shows that the most important explanatory factor behind a country's locational appeal for direct investments lies in the attractive taxation of companies. Particularly because this also applies to Switzerland, the authors of the study point out that the implementation of a constructive Corporate Tax Reform III is of central importance. In terms of political and legal stability, another important factor in the global competition for direct investments, Switzerland continues to perform very well. The geographical and cultural proximity to investors and privileged market access to the EU compared with other non-EU countries also serve to promote Switzerland as an investment location. In this connection the acceptance of the popular initiative against “mass immigration" on February 9, 2014 and the restrictions potentially entailed by this on free market access to the country's largest economic partner therefore give cause for concern.

Uncertainty Impeding Investments in Switzerland
The uncertainty in terms of economic policy is currently very high, as shown by the “uncertainty index” drawn up for Switzerland by the economists at Credit Suisse. This index that counts the number of times the word "uncertainty" is mentioned in an economic and monetary policy context in the Swiss media in February reached its highest level since records began in 2000. While the negative impact of the political uncertainty on investments from abroad cannot be quantified in the short term, the correlation between the uncertainty index and total investments in equipment in Switzerland is statistically significant. An increase in the uncertainty index of 1% entails an average reduction in investments in equipment of around CHF 30 million in the corresponding year.

Restrictive Implementation of Initiative against Mass Immigration Affects Sectors Differently
If we take the past as a benchmark, a shortage of labor supply brought about by quotas would hit the catering industry and the IT and consulting sectors hardest. Furthermore, healthcare and social services as well as real estate would be most affected by a downturn in consumption, while potential restrictions on market access would exert the most negative impact on traditional industrial sectors such as the metal, wood and paper industry.

Enhancement of Swiss “Sovereign Wealth Fund”
The SNB accumulated enormous foreign currency reserves during the financial and euro crisis. The economists at Credit Suisse explain that these now exceed the level required from a monetary policy perspective by at least CHF 300 billion. These “surplus” reserves are therefore comparable with a sovereign wealth fund. A simulation by the authors of the study has shown that based on capital market assumptions of Credit Suisse for the next five years, the average expected returns are set to increase from 2% to up to 7% if the SNB pursues an investment policy geared more towards conventional sovereign wealth funds. At the same time, however, the fluctuations in the reserves would also increase, so that the economists of Credit Suisse point out that the expectations of regular payouts by the Federal Government and cantons can in any case hardly be met.

What the Cantons Spend Their Money on
The cantons today spend almost 30% more per inhabitant than in 1990, up from (an inflation-adjusted) CHF 8,000 back then to CHF 10,300 at present. The key drivers of this growth are education spending, which has risen by more than a third, and double the amount of expenditure for social security. Healthcare is also a significant driver of expenditure. There are massive differences between the cantons in both the amounts and types of expenses. At around CHF 15,000 (net) per inhabitant, the Canton of Geneva spends two to three times as much as the Canton of Appenzell Innerrhoden. The expenditure of the cantons is partly borne indirectly by other parts of the country through transfers, although the expenditure structures vary greatly. The efficiency of government performance can only be derived to a limited extent from a consideration of expenditure. However, the expenditure structure of a canton does tell us something about its political processes and preferences as well as its general economic conditions.

Different Facets of the Swiss Economy in a Single Publication
This latest edition of Monitor Switzerland also provides an overview of the global economic outlook of Credit Suisse, comments on the latest developments in the relationship between Switzerland and the EU and outlines possible scenarios concerning the latter's future. Brief analyses of the real estate market and sector economy round off Monitor Switzerland.

Monitor Switzerland is published every quarter. The next edition will appear on September 9, 2014.