Switzerland and Liechtenstein WT/TPR/S/141 
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I. ECONOMIC ENVIRONMENT 
(1) INTRODUCTION  
1. Since the last Trade Policy Review of Swit zerland and Liechtenstein, in 2000, Switzerland 
has gone through a period of persistent economic stagnation and even recession in 2003, from which 
it is beginning to recover. The stagnation, which affected all major sectors of the economy, can be 
linked to both domestic and external factors.  Dom estic elements included deterioration of the fiscal 
situation, with a considerable structural decline in  revenue, and a sharp, if temporary, tightening in 
monetary policy in 2000-01. External factors incl uded the persistent weakness of the world economy, 
especially the slow pace of growth in the European  Union, Switzerland’s main external partner, and 
the effects of the global downturn on finance, capital goods, and tourism.  
2. At present, Switzerland’s economic situati on is improving, supported by budgetary 
consolidation and strongly growth -supportive monetary policy (section (2)(i) below).  Switzerland’s 
position outside the expanding European Union and Eu ropean Economic Area also contributed to its 
slow economic growth in the recent past.  This s ituation is, hopefully, bein g corrected through the 
conclusion of the two sets of bilateral agreements with the EU (Chapter II). 
3. By contrast, Liechtenstein’s economy grew substa ntially in the period up to 2000, although a 
downturn occurred in 2001:  later data are not av ailable. Investment has flowed in, the budgetary 
situation is healthy, and employment has increased considerably in relation to the small size of the 
economy, with substantial inward cross-border comm uting.  This striking difference from Switzerland 
can be clearly linked to Liechtenstein’s membership of the European Economic Area since 1995 
(Chapter II), and the resulting changes that have ta ken place in its economic structure (section (2)(ii) 
below).1 
4. Switzerland and Liechtenstein remain among the richest countries in the world. However, 
Switzerland’s position has fallen back when purchasi ng power parities (PPP) are taken into account. 
The IMF notes that in 1994, Switzerland was in four th position in terms of GDP per head (based on 
PPP) behind Luxembourg, Norway, and the United States.  In 2003, Ireland, Denmark, Canada, 
Austria, and Iceland were also estimated to  have higher GDP per capita in PPP terms than 
Switzerland.2  In nominal terms, GDP per person employ ed in Liechtenstein is estimated to be 
approximately 40% higher than in Switzerland.3 
5. The structural differences between the two economies partly reflect their relative sizes, but 
also the evolution that has taken place in the re cent past.  In 2002, services accounted for some 70% 
of the Swiss GDP, manufacturing around 19%, and agri culture about 2%.  For Liechtenstein, the share 
of services is around 60%, and that of manufacturi ng, some 40% (Table I.1). Within the services 
sector, tourism and finance are the main motors of growth in Switzerland, and finance the principal 
contributor in Liechtenstein.  Manufacturing in both countries is becoming increasingly oriented 
towards high-technology, high-value-added industries.   
                                                      
1 The Liechtenstein authorities note that EEA membership boosted the economy by opening it to 
foreign investment in banking and in surance liberalizing access for cross-bo rder commuting, particularly from 
Austria, and easing rules of origin for traded goods.  As  a result, the economy has become more diversified both 
in its product structure and in  its access to markets, and stro ng growth has taken place.  
2 IMF (2004b).  
3 The authorities note that a GDP per capita figure for Liechtenstein, based on the resident population, 
gives an unrealistic picture because of the high proportion of cross-border commuters employed (section (2)(i)(a) below). WT/TPR/S/141 Trade Policy Review 
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Table I.1 
Switzerland and Liechtenstein at a glance 
  Switzerland 
(2002) Liechtenstein 
(2001) 
Area (km2) 41,285 160 
    
Resident population ('000) 7,368.0 33.9a 
    
GDP total (Sw F billion, current prices) 431.1 3.8b 
    
GDP per capita (Sw F) 58,509.8 111,540b 
    
Share of real GDP at market pricesc   
   Agriculture 1.3 .. 
   Mining and quarrying 0.2 .. 
   Manufacturing 19.4 39.0 
   Electricity, gas and water 2.5 .. 
   Construction 5.6 .. 
   Services 71.0 60.0 
      Trade, restaurants, hotels 15.5 .. 
      Transport and communications 6.1 .. 
      Finance, insurance, real estate, R & D 23.2 30.0 
    
Share of employment by sectora   
   Agriculture 5.1 1.3 
   Mining and quarrying 0.1 0.2 
   Manufacturing 17.4 35.6 
   Electricity, gas and water 0.6 0.7 
   Construction 7.5 8.4 
   Services 69.2 53.9 
      Trade, restaurants, hotels 21.0 10.7 
      Transport and communications 6.6 3.8 
      Finance, insurance,  real estate, R & D 5.3 16.4 
.. Not available. 
a 2002 figure. 
b GNI figure is recorded for Liechtenstein. 
c Latest year available, 2001 for Switzerland. 
Source: Swiss Federal Statistical Office (2004a);  and Principality of Liechtenstein (2004a). 
6. Both economies are highly dependent on internatio nal trade, both in goods and services.  The 
European Union (particularly Germany) is the larg est buyer and supplier of goods to Switzerland and 
Liechtenstein alike; in services, the United States,  Japan, and other Asian economies are also major 
trading partners.   
(2) RECENT ECONOMIC DEVELOPMENTS  
(i) Macroeconomic developments 
(a) Overview 
7. Switzerland’s economic growth rate, as indicated by real GDP, fell from 3.6% in 2000 to 1% 
in 2001 and 0.3% in 2002 (Table I.2). Provisional estimates for the year 2003 show that the economy was in recession (-0.4% fall in real GDP). Recove ry began in mid 2003;  from then up to mid 2004, 
there was a pronounced rise in manufacturing production; and in 2004, most indicators confirm that the recovery is under way.  Overall, the authorities e xpect growth of some 1.8% in real GDP in 2004, 
with some private sector estimates are more optimistic.
4  
                                                      
4 The UBS projects growth of 1.9% in 2004 and 2.1% in 2005 (UBS AG, 2004). Switzerland and Liechtenstein WT/TPR/S/141 
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Table I.2 
Economic indicators, Switzerland, 1999-03 
 1999 2000 2001 2002 2003 
National accounts SEC 95a      
Real GDP b 1.3 3.6 1.0 0.3 -0.4 
   Agriculture -4.2 7.2 -8.0 -3.8 ... 
   Mining and quarrying -1.8 -2.9 -0.5 -2.8 ... 
   Manufacturing 0.0 1.6 3.7 1.5 ... 
   Electricity, gas and water 4.1 -1.6 2.5 -2.9 ... 
   Construction -1.1 -0.4 -0.3 5.8 ... 
   Services 0.8 4.8 0.2 0.1 ... 
      
Final consumption b 2.0 2.4 2.3 -0.8 0.2 
   Private consumption b 2.3 2.3 2.0 0.3 0.5 
   Government consumption b 0.3 2.6 4.2 3.2 1.4 
Gross fixed capital formation b 1.2 4.3 -3.1 0.3 -0.3 
   Equipment b 4.9 5.5 -2.9 -1.1 -2.0 
   Construction b -3.7 2.7 -3.4 2.2 1.8 
Changes in stocks (% of GDP) b -0.5 -0.9 0.5 -0.5 -1.0 
Net exports of goods and services (Sw F billion) b 22.4 23.7 18.4 23.3 30.6 
      
Consumer prices (% changes) 0.8 1.6 1.0 0.6 0.6 
Unemployment rate 2.7 2.0 1.9 2.8 3.8 
      
External sector (Sw F billion - current prices)      
Exports of goods and non-factor services 116655..44  118888..22  118888..11  118855..11  118844..11  
    Merchandise exports 112211..55  113377..77  114400..11  113388..00  113377..11  
    Services exports 4444..00  5500..44  4488..00  4477..00  4477..11  
Imports of goods and non-factor services 114422..99  116655..11  116699..33  115566..77  115555..66  
    Merchandise imports 112211..77  114422..00  114444..77  113322..99  113322..66  
    Services imports 2211..11  2233..22  2244..66  2233..88  2233..11  
Trade balance 2222..66  2233..00  1188..77  2288..44  2288..55  
    Merchandise --00..33  --44..22  --44..77  55..11  44..55  
    Services 2222..88  2277..33  2233..44  2233..33  2244..00  
Trade balance (% of GDP) 55..77  55..55  44..44  66..55  66..66  
Current account balance 4444..11  5511..77  3333..88  3366..22  5577..00  
Total reserves minus gold (US$ billion - end of period) 3366..33  3322..33  3322..00  4400..22  4477..66  
   In months of imports of goods and non-factor services 4.8 4.2 4.1 5.1 4.6 
Nominal effective exchange rate (% change)b -0.5 -1.6 3.9 5.1 1.4 
Real effective exchange rate (% change)b -1.5 -2.2 2.8 3.2 -0.3 
      
Government finance (Sw F billion - current prices, end 
of period)      
Receipts 145.3 159. 2 157.7 158.6 163.1 
Expenditure 147.5 150.0 157.5 163.8 168.2 
Balance -2.2 9.2 0.2 -5.2 -5.1 
Balance (as % of GDP) -0.6 2.2 0.1 -1.2 -1.2 
      
Financial indicators (end of period)      
Broad money (M3) (% change) 1.0 -1.8 3.1 3.8 8.4 
3-month Swiss franc LIBOR rate (%) 1.8 3.4 1.8 0.6 0.3 
a % changes - over previous year at prices of preceding year. 
b Data for 2003 are provisional estimates. 
Source: Swiss Federal Statistical Office, Annuaire statistique de la Suisse , various issues;  Swiss National Bank,  
 Monthly Statistical Bulletin;  information supplied by the Swiss author ities; and WTO Secretariat calculations.  
 
8. The strongly export-led nature of the Swiss ec onomy means that it is heavily dependent on 
developments in other countries.  So far, there ha ve been a number of positive signals, mainly in areas 
outside Europe (Asia and the Americas).  However,  the strong concentration of Switzerland’s external 
trade in goods with other European economies indicat es that sustainable recovery must also depend 
on improvement in conditions in Switzerland’s neighbours. 
9. The recovery has not, to date, been accomp anied by a significant improvement in the 
employment situation. At mid 2004, the seasonally  adjusted unemployment rate was 3.9%, the same WT/TPR/S/141 Trade Policy Review 
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as in August 2003, with considerable regional and age-group variations, and the Manpower Job Index 
had stayed at a relatively low level since June 2003.5  
10. Consumer price inflation in the Swiss and Li echtenstein economies has remained low, and 
declining, from 1% in 2000 to 0.5% in 2003 on an a nnual average basis.  At the same time, producer 
and import prices, which increased by 2.7% in 2000,  have shown constant falls since then, while 
producer prices in agriculture declined sharply in 2001 and 2002, rising by 1.5% in 2003. 
11. Data for Liechtenstein’s gross domestic produc t and gross national income are available only 
up to 2001.6  Official GNI figures state that the economy grew by 9.4 % in current prices in 1999 
(approximately 9% in real terms) and by 6.3 % in 200 0 (5.7% in real terms), much more rapidly than 
in Switzerland in the same period.  
12. Employment in Liechtenstein has boomed, leading to a sharp influx of inward commuting. 
Official data show that in the four year period 1998-02, total employment increased from 
approximately 24,000 to some 29,000, an increase of 21%; inward commuting, however, increased 
from under 9,000 to 13,000 (more than one third of Liechtenstein’s resident population), principally 
from Austria and Switzerland, whose citizens accounted for 44% of total employment in 
Liechtenstein in 2002 (see section (ii) below for sectoral trends).7 
(b) Fiscal developments 
13. Switzerland’s general government accounts, in su rplus in 2000 and 2001,  have gone steadily 
into deficit since 2002, widening to a gap of 1.2% of GDP in 2003 and a projected deficit of 2.7% of 
GDP (including social security) in 2004  (Table I.2). The deterioration is mainly evident at the federal 
and cantonal levels of government.  
14. Present plans are to restore structural balance in the federal budget by 2007. Measures already 
undertaken include raising the principal rate of valu e-added tax to 7.6%, reducti on in federal grants (a 
cut that has a knock-on effect on cantonal finances) , the adoption of a debt brake rule and, as a 
consequence, the introduction, in December 2003, of a consolidation programme aimed at reducing 
the deficit by 0.75% of GDP by 2006 through extens ive budgetary cuts at fede ral and cantonal levels.  
Further measures  currently being discussed include an additional reduction in expenditure of Sw F 
1.5 billion by 2007, an increase in revenues due to stri cter control of taxpayers, and cost reductions in 
the public administration.  
15. The present economic recovery is expected to ha ve a positive effect on tax revenue. It is also 
expected to have a positive effect on the fiscal balance as, under Switzerland’s “debt brake” regime, 
additional cyclical revenue should not in fluence the expenditure ceiling allowed.8  
                                                      
5 The State Secretariat for Economic Affairs (seco) notes that there is a structural break in the time 
series of announced vacancies in Ja nuary 2004, which makes th e figures difficult to in terpret. The Manpower 
Index is regarded as the best substitute.   
6 The authorities claim that GNI is a better measure of Liechtenstein’s internal income than GDP, since 
a high proportion of labour income accr ues to cross-border  commuters.  On the other hand, GDP would still be a 
better measure of the economy’s production. 
7 Principality of Liechtenstein (2004a). 
8 The Swiss debt containment rule or "debt brake", sets a limit, for each year, on the amount of central 
government expenditure, as a function of current revenues and the position of the economy in the business 
cycle. The rule is aime at keepi ng total central government expenditure relatively independent of cyclical 
variations, while tax revenues and unemployment insuranc e act as automatic stabilizers.  The debt brake rule is 
intended to ensure a balanced budget over the economic cycle. Switzerland and Liechtenstein WT/TPR/S/141 
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16. The IMF, in its spring-2004 review of Swit zerland, judged the budgetary situation to be 
"relatively sound", with a "moderate" general government deficit by international standards.9  
Certainly, Switzerland, were it a member of the EU, would still be within the "Stability Pact" guidelines.  Nevertheless, the Fe deral Council and administration ar e seriously concerned about the 
outlook for the fiscal balance, particularly as the lo nger term prospect, with an aging population and 
relatively smaller workforce, is for higher de ficits on pension and health insurance accounts.
10 
17. The Liechtenstein authorities note that, in the period 2000-03, the development of the national 
budget was determined by stock exchange movements.   Tax income increased up to 2001, falling in 
2002 and 2003.  At the same time, current expens es were affected by exchange losses on reserve 
assets. In 2002, the current account of the budget show ed a deficit of Sw F 47 million, recovering in 
2003 to a Sw F 48 million surplus (approximately 1% of GDP).  The investment budget shows similar 
trends. 
(c) Monetary policy developments  
18. Under the 1980 Monetary Union Arrangement with Liechtenstein, Switzerland formulates 
monetary policy for the Union.  At the end of 1 999, the Swiss National Bank (SNB) determined that it 
would no longer fix quantitative money supply target s.  Rather, it would thereafter base all monetary 
policy decisions on an inflation forecast, taking "a ll relevant indicators" into account, including the 
growth of broad money (M3). A target range a nd rate would be established for the Swiss franc 
London Interbank Offered Rate (LIB OR), and varied in the light of these inflation-based criteria.11  
19. The direction of monetary policy has varied sharply during the period under review. After 
three years of expansionary policy, monetary cond itions, as expressed by the LIBOR target range and 
rate, were rapidly tightened during 2000. The offi cial target rate was doubled between end 1999 and 
mid-June 2000 (Table I.3 (a)).  Money market rate s, on an annual average basis, more than doubled 
between 1999 and 2000 from 1.41% to 3.29% (Table I.3 (b)).  At the time, the authorities considered 
that the upswing of the economy would be boosted mo re than had been expected in December 1999, 
when the inflation forecast was published;  without a rapid reaction by the SNB, this would have led 
to an undesirable easing of monetary conditions. Ov erall, the monetary tightening was, relatively 
speaking, sharper than in any comparable OECD-ar ea country or group (Table I.3(b)). The effects 
were immediate:  on an annual av erage basis, broad money (M3) declined by 1.75% between 1999 
and 2000; between the fourth quarter of 1999 and that of 2000, it declined by 6.2%.12 
                                                      
9 IMF (2004a). 
10 Seco (2004b and 2004c). 
11 The Swiss National Bank influences the LIBOR rate by injecting or withholding liquidity through 
repo (loan and repurchase) operations. See Swiss National Bank (2004b).  
12 Swiss National Bank, Quarterly Bulletin , various issues. WT/TPR/S/141 Trade Policy Review 
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Table I.3  
(a)  LIBOR target ranges and rates, end-1999-mid-2004 
(Per cent) 
Date Target rang e Target rate 
End 1999 1.25-2.25 1.75 
3/2/2000 1.75-2.75 2.25 
23/3/2000 2.5-3.5 3.0 
15/6/2000 3.0-4.0 3.5 
22/3/2001 2.75-3.75 3.25 
17/9/2001 2.25-3.25 2.75 
24/9/2001 1.75-2.75 2.25 
7/12/2001 1.25-2.25 1.75 
2/5/2002 0.75-1.75 1.25 
26/7/2002 0.25-1.25 0.75 
6/3/2003 0.0-0.75 0.25 
17/6/2004 0.0-1.0 0.5 
Source :  SNB, Quarterly Bulletin . 
 
(b)  Swiss and other OECD-area money market interest rates, 1999-03 
(Annual averages of 3-month rates, per cent) 
Year Sw F € US$ JP¥ 
1999 1.41 2.96 5.42 0.22 
2000 3.29 (+133%) 4.40 (+48%) 6.53 (+20%) 0.28 (+27%) 
2001 2.86 4.26 3.78 0.15 
2002 1.13 3.32 1.80 0.08 
2003 0.33 2.33 1.22 0.06 
Minimum monthly rate in Switzerland in 1999 = 0.99% 
Maximum monthly rate in Switzerland in 2000 = 3.585 % (362% of minimum in 1999) 
Source: European Central Bank and SNB.  
20. Subsequently, there was a change to a "strongl y expansionary monetary policy" through the 
period 2001-0313, with four reductions from 3.5% to 1.75%  in the target rate during 2001 alone, and 
increases of 3.1%, 3.8% and 8.4% respectively in M3  in 2001, 2002, and 2003 (Tables I.2, I.3). In 
June and September 2004, the SNB, reacting to the recovery of ec onomic growth in Switzerland and 
the disappearance of deflationary risk, raised th e LIBOR range in two steps to 0.25%-1.25% and 
moved the target rate up from 0.25% to the mid-ra nge of 0.75%; at the same time, it declared its 
intention to continue to support the upswing.14 
(d) Exchange rate developments 
21. Between 1999 and 2004 the real (and nominal) ex change rates of the Swiss franc showed 
considerable fluctuations in relation to the currenc ies of the main trading pa rtners of Switzerland and 
Liechtenstein, reflecting the sharp adjustments ta king place between the U.S. dollar and the euro. 
Chart I.1 illustrates these developments, showing the overall movement of the real exchange rate in 
relation to the euro, the dollar, the yen and the pound sterling, as well as a basket of 24 partner currencies, between January 1999 and August 2004.   
                                                     
 
13 Swiss National Bank, Quarterly Bulletin , December 2003.  The chairman  of the governing board of 
the SNB stated:  "We have reacted rapidly and unequivocally to the deterioration in the economic situation and 
the upward pressure on the Swiss franc".  
14 Swiss National Bank (2004b and 2004c). Switzerland and Liechtenstein WT/TPR/S/141 
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22. On a monthly basis, the Swiss franc/euro real exchange rate remained roughly stable until 
March 2000, appreciated by 6.6% by May 2002, re mained at approximately the same level until 
January 2003, and then depreciated to reach 96.7%  of its January 1999 le vel by February 2004, 
recovering thereafter.  The franc depreciated in real terms against the dollar by some 26% between 
January 1999 and July 2001, then appreciating, w ith fluctuations, to reach 98% of its January 1999 
level in June 2003, and 103% in January-Februar y 2004 (an appreciation of some 40% overall from 
July 2001), falling thereafter. Against the pound, th e currency depreciated by 15% up to April 2000, 
subsequently appreciating until May 2003, then declining again. Against the yen, the franc fell by 
23% up to September 2000, and then began to appreci ate, reaching 115% of its January 1999 level in 
March 2003, and subsequently fluctuat ing between 109% and 114%.    
 
70.075.080.085.090.095.0100.0105.0110.0115.0120.0
Jan-99Apr Jul Oct
Jan-00Apr Jul
Oct
Jan-01Apr Jul
Oct
Jan-02AprJul
Oct
Jan-03Apr Jul
Oct
Jan-04AprUS$£Yen
EMU/
€Chart I.1
Real exchange rate developments, 1999-04
a
Source:In relation to 24 trading partners.
Swiss National Bank, Monthly Statistical Bulletin.REERaJanuary 1999=100
 
 
23. The real effective exchange rate against a basket of 24 partner currencies reflects the 
increasing weight of European countries (the Euro area and sterling) in Switzerland’s trade.  It 
depreciated by some 7% between January 1999 and March 2000, appreciated more or less steadily 
until January 2003, declined to ar ound 98% of its January 1999 leve l in March 2004 and has since 
recovered.  WT/TPR/S/141 Trade Policy Review 
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(ii) Sectoral developments 
(a) Switzerland 
24. A survey of Switzerland, published in February 2004 in The Economist , quoting the group 
"Avenir Suisse"15, averred that there was not one, but "f our different Swiss economies": the global 
companies; the competitive and innovative small a nd medium-sized compani es; the state-owned or 
semi-privatized sector; and the small domestic enterprises.16   
25. While the sectoral division made in the survey might be debated and this structural 
description might be allied to many European or othe r advanced economies, the distinction is useful:  
some elements of the Swiss economy, such as me dical and pharmaceutical research-based industries, 
and precision engineering, combined with high-t echnology electronics, are indeed world-class and 
competitive by any standards, while in others, in cluding food manufacturing, agriculture, distribution, 
local services, and many of the State-owned industries, heavy dependence on protection and 
regulation persists.  Switzerland’s future economic progress, as a small economy linked umbilically to 
world markets, depends both on th e ingenuity and flexibility of its competitive sectors, and on reform 
and opening up of the shielded sectors.  
26. The upswing in the Swiss economy in late 2003 and the first half of 2004 was apparent in 
virtually all major goods and services sectors.  On an annualized basis, manufacturing activity grew by almost 2% in the fourth quarter of 2003. Mo st manufacturing subsectors, including electronics, 
semiconductors, telecommunications, pharmaceutical s, and medical technologies, reported optimistic 
trends, although the mechanical engineering indus try and its suppliers showed less positive results.
17  
The recovery continued into mid 2004, with GDP grow ing by 1.8% over the first half of 2003, orders 
(particularly from abroad) increasing, and stocks de clining.  UBS reported that the most optimistic 
assessments came from the chemical and pharmaceu tical industries, followed by metals and 
watchmaking.  Foreign demand grew strongly in the machinery, electrical engi neering, chemicals and 
pharmaceuticals, plastics, textiles, and watchmak ing industries, while metals and timber were 
encouraged mainly by growth in the domestic ec onomy.  Growth in the food manufacturing subsector 
slowed in the second quarter of 2004, but the e xpectation is for improved foreign demand, with 
chocolate exports already showing an upswing in th e first half year (section 3(i)(b) below). The only 
main industry still showing contraction in  mid-2004 was paper, printing and graphics.18 
27. Despite the recovery in production, official da ta for the first two quarters of 2004 show no 
significant increases in employment. Overall employm ent in Switzerland was no higher in the second 
quarter of 2004 than a year earlier.  Manufacturing employment actually fell by 2.8% in the period; 
employment in the tertiary sector grew by 0.9%, with  major declines in air transport (principally due 
to layoffs by Swiss International Air Lines) and co mputer services offset by rises in real estate, health 
services, and miscellaneous business services.19  The overall registered unemployment rate in August 
2004 was 3.7%, with major variati ons by sector, region, and age group.20  
                                                      
15 Avenir Suisse is a think-tank sponsored by a number of major Swiss companies. See 
http://www.avenir-suisse.ch.  
16 The Economist , 12 February 2004, "Survey of Switzerland:  Split Personality". 
17 Swiss National Bank, Quarterly Bulletin 1/2004.  
18 UBS AG (2004). 
19 Swiss Federal Statistical Office (2004c). 
20 Seco (2004e), Le Temps , 22 September 2004, "Après les sui sses romands, les jeunes alémaniques 
connaissent les affres du chômage". Switzerland and Liechtenstein WT/TPR/S/141 
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28. Construction of houses and apartments in main centres has been picking up for some time, in 
response to a marked shortage of accommodation. However, overall, construction underwent a secular 
decline through the 1990s, and industrial/commercia l construction remains depressed. UBS, reporting 
in June 2004, confirms this situ ation; residential construction increased by some 13% year-on-year in 
the first quarter of 2004, unlike office c onstruction where surplus capacity remained.21   
29. Preliminary estimates for 2003 suggest a fall in Swiss tourism revenue of 1.5%, mainly due to 
a sharp decline in the number of bed-nights and in  average spending in hotels.  This continued a 
decline of four years in foreign visitor numbers.  Tr avel to Switzerland has been badly affected by the 
perception that Switzerland is an expensive destinati on, by the problems of the national airline, and by 
non-economic factors (the 2001 terrorist attacks and the Iraq war for visitors from the United States, 
and SARS for visitors from Asia).  Travel by Swiss residents abroad has also fallen sharply, by 2.4% 
compared with 2002.  The combined effect of lower income from tourism and lower spending on 
foreign travel led to an increase of 3% in the surplus on the tourist account in 2003.22  Resort directors 
appear more optimistic for 2004, while city t ourism is expected to grow in the short run.23 
30. Over the years, the Swiss economy has become more open. Protection and regulation in many 
sectors have diminished, spurred by WTO provisions (including on government procurement) and by 
movement towards fuller integration of the economy with the European Union, particularly through 
the adaptation of many regulations to EU legisla tion (Chapter II(4)(c)).  Generally, industrial tariff 
protection in Switzerland has fallen to low levels (C hapter III(2)(ii)), and many non-tariff barriers to 
market entry have been abolished.  Protection of agriculture, including food processing, however, 
remains higher than in other European economies – which is to say, it remains very high;  and the 
interests involved influence Switzerland’s negotiating stance both vis-à-vis its European partners and 
in the WTO Doha round of negotiations (Chapter II(4)(i)).   
31. The most recent development in domestic regul ation (in April 2004) was the introduction of 
strengthened competition legislation aimed at re ducing the power of cartels and bringing Swiss 
competition provisions more closely into line with those of the EU (Chapter III(4)(iii)). It is hoped 
that this new legislation will give the authorities th e means to deal effectively with the cartels and 
restrictive practices that persist in many areas, in cluding in construction and distribution, open the 
Swiss economy more widely to competition, and br ing down the many prices of goods and services 
that remain higher than in neighbouring countries. 
(b) Liechtenstein 
32. Since 1995, when Liechtenstein joined the EEA , the volume of business and employment has 
increased sharply, leading to stru ctural change.  In particular, the manufacturing sector has grown 
very rapidly, and accounted for  36% of employment  in 2002.  The sector is dominated by precision 
engineering, electronics, vehicle building, f ood processing, metal manufacturing, and non-metallic 
minerals industries (notably artificial teeth). In ser vices, the banking, insurance, real estate, business 
and legal services groups are the major players, w ith 43% of tertiary employment and 23% of the 
total.24  
                                                      
21 UBS AG (2004), "Selective expansion in the construction sector". 
22 Swiss Federal Statistical Office (2004b). 
23 UBS AG (2004), "Tourism cautiously optimistic". 
24 Principality of Liechtenstein (2004b). WT/TPR/S/141 Trade Policy Review 
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(iii) Balance of payments 
33. The Swiss current account surplus increased fro m Sw F 44 billion in 1999 to Sw F 51.7 
billion in 2000, then declined again to Sw F 33.7 billion in 2001.  Since then, the surplus has grown 
steadily, reaching a high of Sw F 57 billion in 2003 (T able I.4).   
Table I.4 
Switzerland: balance of payments, 1999-03 
(US$ billion) 
  1999 2000 2001 2002 2003 
Current account 29.4 30.6 20.0 23.2 42.3 
   Goods, net -0.2 -2.5 -2.8 3.3 3.3 
      Special trade, net  0.7 -1.2 1.0 4.7 5.1 
         Exports 76.2 74.9 78.0 83.7 97.0 
         Imports -75.5 -76.2 -77.1 -79.0 -91.9 
      Other trade -0.9 -1.3 -3.7 -1.4 -1.8 
   Services, net 15.2 16.1 13.9 14.9 17.8 
      Tourism, net 1.1 1.4 1.3 1.3 1.9 
         Receipts 7.8 7.8 7.5 7.9 9.3 
         Expenses -6.8 -6.3 -6.3 -6.6 -7.5 
      Financial services 7.4 7.9 7.0 6.7 7.7 
         Receipts 8.0 8.6 7.6 7.3 8.4 
         Expenses -0.6 -0.8 -0.7 -0.6 -0.7 
      Other services, net 6.7 6.8 5.6 7.0 8.3 
   Labour income and investment income, net 19.5 21.2 14.1 10.7 26.4 
      Labour income, net -4.6 -4.9 -5.4 -5.9 -7.7 
         Receipts 1.1 1.0 1.2 1.2 1.5 
         Expenses -5.7 -5.9 -6.6 -7.2 -9.2 
      Investment income, net 24.1 26.1 19.5 16.6 34.0 
         Receipts 49.0 60.6 51.7 40.5 61.4 
            Portfolio investment 14.4 14.5 14.6 14.7 16.4 
            Direct investment 23.3 26.1 18.5 12.4 31.7 
            Other investment 11.3 20.0 18.7 13.3 13.3 
         Expenses -24.9 -34.5 -32.2 -23.8 -27.3 
            Portfolio investment -6.6 -7.1 -8.1 -7.4 -8.1 
            Direct investment -10.4 -10.5 -7.6 -6.0 -9.8 
            Other investment -7.9 -16.9 -16.5 -10.4 -9.5 
   Current transfers, net -5.2 -4.2 -5.2 -5.7 -5.2 
       
Capital transfers, net -0.5 -3.5 1.5 -1.2 -0.8 
       
Financial account, net -32.4 -23.1 -35.2 -23.7 -32.1 
   Direct investment, net -21.6 -25.4 -9.4 -1.8 -4.1 
      Swiss direct investment abroad -33.3 -44.7 -18.2 -7.9 -15.7 
         Equity capital -15.9 -33.2 -13.0 -15.8 -3.6 
         Reinvestment earnings -12.2 -10.0 -2.4 5.6 -11.5 
         Other capital -5.2 -1.5 -2.8 2.3 -0.6 
      Foreign direct investment  in Switzerland 11.7 19.3 8.9 6.1 11.6 
         Equity capital 5.0 11.8 9.4 2.5 8.5 
         Reinvestment earnings 6.5 6.5 0.6 1.3 2.4 
         Other capital 0.2 1.0 -1.1 2.2 0.7 
   Portfolio investment, net -40.9 -11.8 -40.9 -22.6 -34.9 
      Swiss portfolio investment abroad -46.8 -22.3 -42.8 -29.9 -33.0 
         Debt securities -29.3 -2.0 -27.9 -22.3 -30.9 
            Bonds and notes -26.5 -1.0 -23.3 -19.0 -24.4 
            Money market instruments -2.8 -1.0 -4.6 -3.3 -6.5 
         Equity securities -17.5 -20.3 -15.0 -7.6 -2.1 
      Foreign  portfolio investment in Switzerland 5.9 10.5 1.9 7.3 -1.9 
         Debt securities 0.4 1.5 0.0 1.7 2.7 
            Bonds and notes 0.3 1.3 -0.5 0.0 1.6 
            Money market instruments 0.1 0.1 0.5 1.7 1.1 
         Equity securities 5.5 9.1 1.8 5.6 -4.6 
   Other investment, net 28.2 10.1 15.8 3.1 10.3 
      Commercial bank lending, net 18.3 6.5 10.6 -17.2 -5.1 
         Claims abroad -77.3 -83.1 27.2 -54.9 -10.6 
         Liabilities abroad 95.6 89.7 -16.5 37.6 5.6 
      Corporate lending, net 2.1 -0.7 -5.2 -5.6 4.5 
    Table I.4 (cont'd) Switzerland and Liechtenstein WT/TPR/S/141 
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  1999 2000 2001 2002 2003 
      Government lending, net 0.1 0.0 0.0 0.2 -0.1 
      Other lending, net 7.7 4.3 10.4 25.7 10.9 
International reserves, change 1.9 3.9 -0.6 -2.4 -3.4 
      Changes in foreign assets -0.9 3.9 -0.6 -2.4 -3.4 
       
Net errors and omissions 3.5 -4.0 13.6 1.6 -9.5 
Source: Swiss National Bank, Monthly Statistical Bulletin , various issues. Available at: www.snb.ch.  
(3) DEVELOPMENTS IN TRADE  
(i) Switzerland  
(a) Trade in goods:  overall trends 
34. International trade developments in Switzerla nd since 1999 must be read cautiously, with an 
eye to the exchange rate movements already menti oned.  Whether data are expressed in Swiss francs 
or in U.S. dollars makes a considerable diffe rence to the apparent trends during the period 
(Table I.5).25   
Table I.5 
Switzerland:  comparison of Sw F and US$ values of exports and imports, 1999-03  
(including trade in precious metals, precious stone s, gemstones, works of art, and antiques) 
Year 1999 2000 2001 2002 2003 
Exports: Sw F billion 120.7 136.0 
(+12.7%) 138.5 
(+1.8%) 136.5 
(-1.4%) 135.4  
(-0.8%) 
Exports: US$ billion  80.3 81.5  
(+1.5%) 82.1  
(+0.7%) 87.9  
(+7.1%) 99.4  
(+13.1%) 
Imports: Sw F billion 120.1 139.4 
(+16.1%) 141.9 
(+1.8%) 130.2  
(-8.2%) 129.7  
(-0.4%) 
Imports: US$ billion 79.9 83.5  
(+4.5%) 84.1  
(+0.7%) 83.7  
(-0.5%) 95.2  
(+13.7%) 
Balance: Sw F billion +0.7 -3.4  -3.4 +6.3 +5.7 
Balance: US$ billion +0.4 -2.0 -2.0 +4.2 +4.2 
Source : Swiss authorities. 
35. The economic turnaround of late 2003 and early 200 4 was led by a rapid increase in external 
trade (Table I.6), which in turn spurred recovery in domestic demand. Strong growth in both export 
and import values occurred between September 2003 a nd June 2004, mainly reflecting the effects of 
economic recovery in Asia and Europe, together with the improved competitiveness of Swiss exports 
as indicated by the depreciation of the real effective exchange rate of the Swiss franc over the period.  
Data for the first six months of 2004 show an increas e of 10.2% in exports a nd 6% in imports over the 
corresponding period of 2003.  Switzerland’s trade bala nce for the first six months of 2004 showed an 
"exceptionally high" surplus of Sw F 5.5 billion.26 
                                                      
25 Swiss National Bank (2004a), June;  and WTO S ecretariat calculations. Sw itzerland publishes trade 
figures both in terms of total trade, including exports an d transit, and "Special Trad e" which excludes re-exports 
and transit.  Re-exports and transit (Other Trade)  are estimated at about 8% of total exports. 
26 Federal Customs Administration (2004). WT/TPR/S/141 Trade Policy Review 
Page 12 
 
 
Table I.6 
Switzerland:  value of exports and imports, by type , January-June 2004 
(excluding trade in precious metals, precious stone s, gemstones, works of art, and antiques) 
 Exports 
(Sw F million) % change from Jan 
to June 2003 Imports 
(Sw F million) % change from Jan 
to June 2003 
Total 70,587 + 10.2 65,075 + 6.0 
Raw materials and semi-manufactures 17,960 + 8.9 17,894 7.7 
Fuel and energy products 191 - 1.6 2,959 4.1 
Capital goods 22,297 + 9.5 17,032 10.7 
Consumption goods 30,138 + 11.7 27,191 2.3 
Source : Federal Customs Ad ministration (2004).  
(b) Composition of trade in goods  
36. The most notable trend in Swiss exports of goods in the period 1999-03 was a sharp increase 
in the shares of chemicals (particularly medical and pharmaceutical products, SITC group 54), and, to 
a lesser extent, of precision instruments.  At the sa me time, shares in exports  declined for machinery, 
other semi-manufactures and textiles, some of Switzerland’s traditional fields of manufacturing 
expertise (Chart I.2). 
37. During the first six months of 2004, all produc ts except textiles increased the value of their 
exports, particularly the food industry (with a 16. 7% increase in chocolate exports), chemicals (13% 
growth in medicaments, vitamins, and diagnostic  products), electronics (increases of between 11% 
and 20% according to product), metal manufacturing, and watchmaking.   
38. Imports of goods show somewhat similar de velopments. Between 1999 and 2003, imports of 
chemicals increased their value shar e considerably, while those of machines and equipment, textiles 
and motor vehicles declined.27 In dollar value terms, the shares of chemicals and fuels showed the 
greatest increases. 
39. In the first half of 2004, imports of capital goods, particularly transport equipment (aircraft 
and railway vehicles), engineering and construction g oods and medical equipment, grew most rapidly.  
Imports of raw materials, semi-manufactures, and consumer durables also increased strongly.   
 
                                                      
27 Swiss National Bank (2004a), June. Switzerland and Liechtenstein WT/TPR/S/141 
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Chart I.2
Switzerland: composition of merchandise trade, 1999 and 2003
1999 2003
(a)    Exports (f.o.b.)
Total:   US$80.3 billion Total:  US$99.4 billion
(b)    Imports (c.i.f.)
Total:   US$79.9 billion Total:   US$95.2 billionPer cent
WTO Secretariat estimates, based on UNSD, Comtrade database (SITC Rev.3).Manufactures
92.2Manufactures
93.1
Manufactures
85.3Manufactures
83.8Agriculture
3.2 Mining
4.3
Chemicals
29.1
Other semi-
manufactures
9.7Non-electrical 
machinery
18.5Electrical 
machines
9.1Transport 
equipment  2.9Textiles and 
clothin g  2.8Watches
7.5Other consumer 
goods
12.5Agriculture
3.1 Mining
3.5
Chemicals
34.3
Other semi-
manufactures
8.2Non-electrical 
machinery
16.3Electrical 
machines
7.3Transport 
equipment  3.3Textiles and 
clothing  2.6Watches
7.4Other consumer 
goods
13.7
Agriculture
7.6
Mining
6.9
Chemicals
16.8
Other semi-
manufactures
12.3
Non-electrical 
machinery
8.8Office 
machines
9.5Other 
electrical 
machines
4.2Transport 
equipment
12.1Textiles and 
clothing
6.1Other consumer 
goods
15.5Agriculture
7.5
Mining
8.3
Chemicals
21.9
Other semi-
manufactures
10.8Non-electrical 
machinery
8.5Office 
machines
7.5Other 
electrical 
machines
3.8Transport 
equipment
10.4Textile and 
clothing
5.6Other consumer 
goods
15.2Other 0.3 Other 0.5Other 0.3Other 0.3
Source :  
 WT/TPR/S/141 Trade Policy Review 
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(c) Direction of trade in goods  
40. Switzerland’s imports are heavily, and increasingly,  concentrated from European sources.  In 
U.S. dollar terms, 79% of imports were shown as originating from the EU15 in 2003, and 82% from 
countries of the 2004-enlarged EU (Chart I.3).  Th e shares of imports from the United States and from 
Asian sources fell over the period, although that of China increased. 
41. In the first half of 2004, imports from China gr ew by 18%, compared with the first six months 
of 2003, and imports of vehicles and machinery from Japan grew rapidly.  Imports from newly 
industrializing economies such as Singapore, Chin ese Taipei, Turkey, and Brazil also increased 
strongly, as did, within Europe, imports from Poland, Slovenia, Italy, Spain, and Germany. 
42. The directions of Swiss exports are more diversif ied, with the share of exports to the EU15, in 
US dollar values, falling from 61% in 1999 to 59% in 2003 (64% and 62% respectively for the enlarged Union).  Within the EU, Germany, France and Italy are the main sources of imports;  exports are much more evenly spread, although Germany rema ins the largest outlet.  The United States’ share 
of exports in dollar terms has declined slightly, while  that of Asia (particularly China and Korea) has 
increased somewhat.  
43. In the first six months of 2004, exports to a ll destinations increased:  however, exports to 
transition economies grew particularly strongly, with  growth of 28% in exports to China and 17% to 
Russia,  while exports to newly industrializing economi es (including Korea, Malaysia, and Turkey) 
also grew rapidly. 
44. These figures must be read with caution. Because of Switzerland’s landlocked nature, the 
apparent origin of imports may not always reflect  their real origin.  Import data, especially for 
commodity-based production, are likely to overstate the European origin of goods.  Many of Switzerland’s imports are either transformed or processed in European sources, and shipped to 
Switzerland in a form that implies change of (sta tistical) origin.  An example is the HS category 
"mineral fuels etc." (HS 27), where the EU is show n in statistics as accounting for 73% of imports.    
Export data can be considered to give a more correct  reflection of the geographical direction of trade, 
particularly with the EU.   
45. Tables AI.1 and AI.2 show a HS 2-digit br eakdown of Switzerland’s exports and imports. 
(ii) Liechtenstein 
46. Liechtenstein publishes data for "direct" imports  and exports, drawn from Swiss customs data 
and excluding trade with and through Switzerland. Th e value of direct exports from Liechtenstein is 
normally more than twice that of direct imports (T able I.7); the surplus on "direct" trade was some 
Sw F 1.5 billion in 2002.  Ninety-three per cent of  Liechtenstein’s "direct" imports and 68% of its 
"direct" exports are from and to other European countries, principally Germany and Austria for 
imports, and Germany, France, Austria, Italy, and Spain for exports; the major import and export commodity groups are machinery and transport equi pment, metal products, glass, ceramic and mineral 
products, and semi-manufactures. 
 Switzerland and Liechtenstein WT/TPR/S/141 
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Chart I.3
Switzerland: direction of m erchandise trade, 1999 and 2003
1999 2003
(a)    Exports (f.o.b.)
Total:   US$80.3 billion Total:  US$99.4 billion
(b)    Imports (c.i.f.)
Total:   US$79.9 billion Total:   US$95.2 billionPer cent
WTO Secretariat estimates, based on UNSD, Comtrade database (SITC Rev.3).United States
12.4
United 
Kingdom
5.5Germany
22.6
France
9.2
Italy
8.0Spain
2.9Austria
3.2Other 
Europe
14.5Japan  4.0Hong Kong, China 
2.4
United States
7.1
Germany
31.0China  1.5
Other Europe
13.9
France
12.0 Italy
9.7Netherlands
5.1Austria
3.9United 
Kingdom
5.7Japan  2.9Other
5.9Other
9.5
EU(25)   79.1EU(15) 77.8
EU(25)   81.5EU(15) 79.4EU(25)   63.7EU(15) 61.2
EU(25)   62.3EU(15) 59.4
United States
5.5
Germany
32.3China  1.9
Other Europe
16.2
France
10.8 Italy
10.7Netherlands
5.0Austria
4.2United 
Kingdom
4.1Japan  2.1Other
5.4United States
11.3
United 
Kingdom
4.9Germany
20.8
France
8.7
Italy
8.3Spain
3.5Austria
3.3Other 
Europe
16.2Japan  4.0Hong Kong, China  3.0Other
9.5
China  0.8Africa  1.6
China  1.8Africa  1.5
Middle East  3.4 Middle East  3.2
Africa
1.3Africa
1.3
Source : 
 WT/TPR/S/141 Trade Policy Review 
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Table I.7 
Liechtenstein: direct trade (excluding trade to and through Switzerland), 1999-02 
Year Direct exports Direct imports 
(a) direct exports a nd imports  SwF million  
1999 2,880.7 1,249.0 
2000 3,032.1 1,456,1 
2001 3,001.7 1,488.1 
2002 2,813.5 1,360.5 
(b) direction of direct trade, 2002  SwF million (%)  
Destination/source   
Europe 1,907.1 (67.8) 1,259.6 (92.6) 
     EU15 1,183.7  (42.1) 1,177.8 (86.6) 
America 6606.5 (21.6) 48.0       (3.5) 
     United States 518.0  (18.4) 44.6       (3.3) 
Asia 255.7  (9.1) 52.2       (3.8) 
     Japan 59.9    (2.1) 10.7       (0.8) 
Oceania 23.2    (0.8) 0.4         (0.0) 
Africa 21.1    (0.7) 0.5         (0.0) 
Source:  Principality of Liechtenstein (2004a);  and Swiss Customs. 
(iii) Trade in services 
47. Switzerland’s services trade, as shown in balance- of-payments statistics, has run a surplus in 
the order of Sw F 23 billion to 24 billion between 1999 and 2003, with a peak of Sw F 27 billion in 
2003 (Table I.4).  Receipts from services were in  the order of Sw F 47 billion (about 35% of 
merchandise exports) in 2002-03, and outgoings in the order of Sw F 23 billion (about 17% of 
merchandise imports). Financial services and touris m together account for some 50% of services 
income;  in 2003, the surplus on financial ser vices was SwF 10.4 billion and that on tourism 
Sw F 2.5 billion. 
48. No information is available on Liechtenstein’s services trade, although clearly, the country is 
a major trader in financial services, which accounted  for 30% of GDP in 2000, virtually all export-
based. 
(iv) Foreign direct investment 
49. Swiss direct investment abroad largely exceeds that by foreign investors in Switzerland; the 
difference between investment outflows and inflow s varied between Sw F 2.8 billion and Sw F 42.9 
billion in the period under review.   
50. FDI flows into Switzerland virtually doubled  between 1999 and 2000, from Sw F 17.6 billion 
to Sw F 32.5 billion; a high level of investment wa s in the metallurgical and machinery industries in 
2000.  Growth in foreign investment in th e services sector (particularly transport and 
communications) continued up to 2001. Betwee n 2000 and 2002, FDI inflows declined to 
Sw F 9.5 billion, reflecting and exacerbating the econo mic downturn;  in 2003, they increased again to 
Sw F 15.6 billion.  Generally, the EU and the Unite d States have been the major sources of FDI in 
Switzerland; the major increase in 2003 came prin cipally from the United States and Canada. Switzerland and Liechtenstein WT/TPR/S/141 
 Page 17 
 
 
51. Swiss capital exports rose from Sw F 50 billion in  1999 to Sw F 75.4 billion in 2000, fell to 
Sw F 12.2 billion in 2002, and rose to Sw F 21.1 billion in 2003. Major investments in 2000 were 
made by the chemicals and banking industries; the major destinations for th ese investments were the 
United States and the United Kingdom.  In 2003, the United States, Belgium and Luxembourg, 
together with offshore financial centres, were  the principal investment destinations.   
52. Chart I.4 shows the evolution of foreign direct investment into Switzerland from 1993 to 
2003, by major investment source.  
-5,00005,00010,00015,00020,00025,00030,00035,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Total EU(15)
United States Japan
OtherChart I.4
Net foreign direct investment flows into Switzerland, 1993-03
Source: Swiss National Bank, Monthly Statistical Bulletin, various issues.Sw F million
 
 
53. The total stock of foreign direct investment held in Switzerland increased from 
Sw F 121.6 billion to Sw F 173.5 billion between 1999 and 2002.  The United States was in 2002 the 
largest single source of FDI in Switzerland, with 39%  of the total; EU member States taken together 
held 57%, with the Netherlands, Germany, and Fran ce the largest investment sources.  The share of 
investment from the United States, and that in the financial sector, also increased significantly during 
the period.  
54. Chart 1.5 shows the stock of foreign direct i nvestment in Switzerland, by major source and by 
sector, in 1999 and 2002.  Financial societies and holding companies are the largest recipient of 
foreign direct investment (see also Chapter III(4)(i)(d)). 
 WT/TPR/S/141 Trade Policy Review 
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Chart I.5
Foreign direct investment stoc k in Switzerland, 1998 and 2002
Per cent
(a) Distribution by origin
EU (15)
66.2Other
3.7Japan
2.0
United States
28.1
EU (15)
57.4Other
4.1Japan
0.6
United States
37.9
Chemicals 
and plastics
7.9Transport
0.6
Insurance  4.2 Electronics, energy, 
optics and watches
6.6
Commerce
12.7Machinery and 
metalworking
2.5
Financial 
societies, holdings
44.1Banks
17.1Other
4.3Chemicals 
and plastics
5.1Transport
2.6Insurance
2.2Electronics, energy, 
optics and watches
4.7
Commerce
11.2Machinery and 
metalworking
2.1
Financial societies, 
holdings
53.7Banks
13.9Other
4.5
Total: Sw F 99,101 million Total: Sw F 173,456 million 
Source: Swiss National Bank, Monthly Statistical Bulletin.1998 2002
(b) Distribution by sector
 
 Switzerland and Liechtenstein WT/TPR/S/141 
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55. The stock of Swiss direct investment abroad rose from Sw F 253.6 billion to 
Sw F 409.6 billion over the period. The largest value of Swiss investment abroad is held in Europe, 
with EU members accounting for 44% of the total.  The value of investment in central and eastern 
European countries doubled, that in EFTA members tripled, and that  in "Other Europe" increased 
from Sw F 1 billion to Sw F 21 billion in the period.28  
(v) Outlook  
56. The short- to medium-term outlook for the Swiss economy seems brighter at this point than 
during the past four years. The apparent recovery  in the U.S. and Asian economies, combined with 
some renewed growth in domestic demand and continui ng low inflation, suggest that growth is likely 
to persist into 2005.  Official forecasts and those of banking institutions bear this out.  
57. However, Switzerland’s high dependency on in ternational trade makes it vulnerable to 
external shocks or downturns.  Direct effects of oil price rises are not generally expected to have a major impact on the economy
29, but indirect effects on other economies may, by harming 
Switzerland’s markets, affect the economy’s prosp ects. The consequences of the Iraq war and high 
fiscal and external deficits in the United States are unpredictable.  Switzerland’s heavy reliance on 
European markets as a basis for stable growth also  makes the economy vulnerable to developments in 
the Euro-zone economies, and particularly in Germ any, where slow growth continues.  For these 
reasons, recovery does not yet seem fully assured. 
58. Liechtenstein has been able to benefit fro m EEA membership to diversify its economic 
structure and attract substantial new investment.  Bei ng small and flexible, it has been able to invest in 
specific, export-based niche industries, which, toge ther with the growth and diversification of its 
financial sector, should form a strong base for its continued prosperity. 
                                                      
28 Swiss National Bank (2004e), Table series S1. "Other Europe" comprises offshore financial centres 
(Channel Islands and Gibraltar), Andorra, Malta, San Marino, Holy See, Cyprus, and Turkey. 
29 Seco (2004e).