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Swiss Immigration Curbs Seen as Threat to Economic Growth

The Swiss National Flag Flies above Switzerland's Parliament
Switzerland already has upper limits in place for newcomers from countries outside the EU, such as Canada and Australia. It’s not yet clear what form the quotas for EU citizens would take. The government has said it will announce a road map by June and propose a bill to parliament by the end of the year. Photographer: Valentin Flauraud/Bloomberg

Switzerland’s decision to limit immigration will hurt economic growth, according to economists who cover the country.

Restrictions on foreigners approved by Swiss voters earlier this month will hurt growth prospects, according to 16 of 21 responses in Bloomberg’s monthly survey of economists. Five said the limits will have a negligible effect and none said the curbs would have a positive impact.

Immigration limits are “clearly negative for growth,” said Timo Klein, senior economist at IHS Global Insight Inc. in New York. “The largest effect is not so much from any quotas themselves but from the direct investment not taking place due to firms fearing the uncertainty about not getting the personnel they need in the future to make such investments profitable.”

The Swiss government will have to set a cap for foreigners within the next three years after 50.3 percent of voters embraced an initiative by the euro-skeptic Swiss People’s Party SVP against mass immigration. Companies including Nestle SA have warned that a quota system on foreigners may undermine business. It would also contravene an agreement with the European Union that allows citizens to take up jobs freely in the country, and jeopardize other accords as well.

Significant Drag

“This should be a considerable drag on potential growth,” said Manuel Andersch, an analyst at Bayerische Landesbank in Munich. “The full effect will only be visible once the concrete immigration rules are known. The stricter the quota, in particular for high-skilled workers, the larger the drag.”

Switzerland already has upper limits for newcomers from countries outside the EU, such as Canada and Australia. It’s not yet clear what form the quotas for EU citizens would take. The government has said it will announce a road map by June and propose a bill to parliament by the end of the year.

Immigration has boosted growth and helped propel national output almost 5 percent above pre-crisis levels, the Swiss National Bank said in November. The Zurich-based central bank predicts the economy will grow 2 percent this year, with consumer prices climbing 0.2 percent.

Early Effect

According to Credit Suisse Group AG economists Claude Maurer and Maxime Botteron in Zurich, lower immigration will damp annual growth by 0.3 percentage point. Jordan Rochester, an economist at Nomura International Plc in London, predicts a drag of 2 percentage points over a 10-year period, while Alan McQuaid, chief economist at Merrion Capital Group Ltd. in Dublin, expects growth rates to be 0.1 percentage point to 0.2 percentage point lower over the next decade.

“The biggest negative effect” will come early on as companies delay investing in equipment, said Reto Huenerwadel, senior economist at UBS AG in Zurich. As time passes, the impact could be offset, for example by gains in productivity, he said.

The decision to enact immigration limits met with condemnation among some European officials, with French Industry Minister Arnaud Montebourg deeming it tantamount to economic “suicide.”

Allowing EU citizens to take jobs in Switzerland is part of a series of agreements governing trade in goods and services, the environment, and scientific research, all of which could now fall. The EU is Switzerland’s top destination for exports.

German Chancellor Angela Merkel warned yesterday against any hasty judgments and said the EU must find a solution.

Among those warning of EU reprisals is Alastair Winter, chief economist at Daniel Stewart & Co. in London. It’s “too early to say but the EU will retaliate,” he said.


The survey also found that consensus is growing among economists that the SNB won’t remove its cap of 1.20 per euro on the franc before next year. It implemented the ceiling in 2011, when investors seeking protection from the euro area’s debt crisis boosted the Swiss currency, threatening to precipitate deflation and a recession.

Last month, SNB President Thomas Jordan pledged to keep the cap in place “for the foreseeable future.” According to a university study published today, the franc would have been stronger in 2012 without the cap, putting an additional burden on export-oriented companies.

Just 9 percent of the economists surveyed said the SNB will lift the ceiling this year, compared with 15 percent a month ago. A plurality -- 41 percent -- predict an exit in 2015, up from 35 percent last month, and 36 percent see the move in 2016, the survey found.

The franc is seen weakening to 1.25 per euro by the end of 2014, before falling to 1.30 per euro in 2015 and 1.34 per euro in 2016, according to data compiled by Bloomberg. According to a UBS research note published today, purchasing-power parity lies at about 1.2740 for the pair.

The franc was little changed at 1.2215 per euro at 11:54 a.m. in Zurich. Against the dollar it stood at 88.85 centimes.

“The Swiss franc needs to have weakened to well above 1.30 per euro in order for the SNB to consider it ‘‘safe’’ to remove the cap,” Klein at IHS said.

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