Swiss recovery needs continued fiscal prudence

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The Swiss economy returned to growth in 2004, supported by external demand and domestic policies. However, the recovery has been fragile, the IMF said in its annual economic review. Growth is projected to continue in 2005, although at a slower pace. The IMF Executive Board commended Switzerland's sound economic management and flexible labor markets, which have secured low inflation and unemployment, and a high standard of living.

However, the Board noted downside risks stemming from possibly weaker demand in major trading partner countries, higher oil prices, and further appreciation of the Swiss franc. Raising the economic growth rate and tackling the fiscal pressures associated with population aging continue to be Switzerland's main challenges.

The Board stressed the importance of opening up sheltered sectors, intensifying competition in product markets, and eliminating nontariff barriers.

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The Swiss National Bank has maintained an accommodative stance, and the Board agreed that the current low level of interest rates should be maintained for the time being. However, it noted that with a narrowing...