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Announcement:

Moody's: Switzerland's economic resilience underpins its credit profile, despite currency strength

Global Credit Research - 18 Nov 2015

London, 18 November 2015 -- While economic growth in Switzerland (Aaa stable) has slowed this year following the substantial Swiss franc appreciation, the economic impact of the exchange rate shock has been more muted than expected, an indication of the resilience of the Swiss economy, says Moody's Investors Service in a report published today. Moody's also expects that the country's public finances will remain strong over the next 12-18 months.

Moody's annual Switzerland Credit Analysis is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. The rating agency's report is an update to the markets and does not constitute a rating action.

"For 2015 we expect real GDP growth of just below 1%, with investment and export growth likely remaining modest because of the currency appreciation. For 2016 and beyond, we expect the Swiss economy to return to growth rates of around 2%, in line with the average between 2000 and 2014," says Kathrin Muehlbronner, a Senior Vice President at Moody's and author of the report.

"Consumption has remained strong in the first half of the year, reflecting the robust labour market and the gains in disposable household income as imports have also become materially cheaper. This follows the Swiss National Bank's decision in January to end the exchange rate peg to the euro," she adds.

Risks to this relatively benign outlook relate mainly to the global and more specifically the euro area growth outlook, given the strong export orientation of the Swiss economy, says Moody's.

In addition, a more medium-term growth risk could emerge if Switzerland's relationship with the EU suffers as a result of a Swiss referendum in 2014, which requires the government to re-establish quotas for EU workers from February 2017 onwards. Such quotas are incompatible with Switzerland's commitment to the free movement of people under its agreement with the EU and Moody's expects that negotiations between Switzerland and the EU will be complex.

Switzerland benefitted strongly from the inflow of mostly highly-qualified workers over the past decade and the country's growth potential could be negatively affected by strict limits on immigration.

Switzerland has exceptionally strong public finances, with the general government having exhibited balanced budgets over the economic cycle and small surpluses in most of the past years, notes Moody's. This year the rating agency expect that the budget will post a small deficit, which is compatible with the country's long-established fiscal rules and does not affect the rating agency's view of Switzerland's fiscal strength.

The rating agency assesses the Swiss fiscal framework to be transparent and highly credible. As a consequence of the persistent budgetary discipline, Moody's projects that the public debt level will decline to an estimated 34.9% of GDP this year and a slightly lower level of 34.6% of GDP next year, compared to a peak of 50.7% of GDP in 2003.

Switzerland's credit challenges relate mainly to the country's large banking sector, though Moody's considers that the associated risks for the sovereign have materially declined over the past several years.

Switzerland has been at the forefront of establishing a bank resolution framework with significant loss-absorbing capital buffers, which the two global systemically important banks will have to raise further in coming years to comply with recently tightened capital and leverage requirements.

The Swiss authorities have also implemented measures that address concerns over the build-up of a housing bubble given already very high levels of household debt of around 120% of GDP and 186% of households' disposable incomes. Recent data point to a slowdown in house price and mortgage credit growth, although risks remain given the very low interest-rate environment.

Subscribers can access the report at:

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_185836

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Kathrin Muehlbronner
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Yves Lemay
MD-Banking & Sovereign
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's: Switzerland's economic resilience underpins its credit profile, despite currency strength
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