Economic Impact of the Swiss Financial Sector

 

Stabilising activities of the financial sector in the Corona pandemic environment

The supply of the economy and the population with financial and insurance services is part of the central infrastructure of an intact economy. Without functioning banks, the money supply would collapse and economic activity would be practically impossible. Without insurance, claims would pose devastating or even existential threats, and without the protection of financial risks, economic activity would be significantly restricted. During the Corona crisis, the banks fulfilled their function as infrastructure service providers to a particularly high degree in handling the COVID-19 credit programme. To counteract liquidity bottlenecks, companies could apply for a COVID-19 credit from 26 March to 31 July 2020. Every fourth company in Switzerland took advantage of this offer. A total of CHF 16.9 bn was granted under the credit programme. Insurance companies paid out CHF 1.3 bn for financial losses in 2020, three times as much as in 2019, mainly due to business interrup[1]tions and event failures. This allowed liquidity bottlenecks at the companies to be cushioned

 

Financial sector directly generates ten percent of Swiss economic output

With a value added of CHF 66.5 bn, the companies in the financial sector generated around ten percent of Switzerland's economic output in 2020. In addition, banks and insurance companies also trigger economic activities outside the financial sector. The demand for intermediate services - for example, IT or consulting services - leads to orders for companies along the entire upstream value chain. In addition, trade and industry in particular benefit from the consumer spending of employees. Taking all such effects along the value chain into account, a total of CHF 95.5 bn in value added was created in 2020. This means that every seventh franc of value added in the Swiss economy is attributable to the activities of banks and insurance companies. The high importance of the financial sector is also reflected in the labour market. With more than 224,000 jobs (FTE), the financial sector accounts for every twentieth job in Switzerland. Including all indirectly involved companies due to the economic interdependencies, this figure is more than 430,000 jobs (FTE). This means that every tenth job is linked to the business activities of the financial sector.

 

Substantial tax revenue in the financial sector

Taxes levied by the Confederation, cantons and municipalities that were directly or indirectly related to the financial sector amounted to an estimated CHF 17.1 bn in 2020, which corresponds to around twelve percent of the total fiscal revenues of the public sector. Around CHF 9.7 bn of this was attributable to taxes on labour income and corporate profits. The Confederation collected an additional CHF 7.4 bn in the form of taxes on financial market transactions and financial services.

 

Financial sector benefits from economic upswing

Due to the opening steps taken in many countries during the year and the stimulated demand, the economy is recovering from the corona-induced slump both in Switzerland and globally. The financial sector is also benefiting from this. Due to the overall good stock market year in 2021, the banks' income from asset management is increasing. In connection with the Corona crisis, more defaults of corporate treasuries are to be expected. However, the negative effects are likely to be limited, among other things due to the low loan portfolios in hard-hit sectors. As a result, BAK Economics expects moderate growth in banking value added (2021: 1.6%, 2022: 1.6%). In the insurance sector, higher premium income and an overall lower claims burden than in the previous year will have a positive impact on the development of value added (2021: 2.0%, 2022: 2.1%).

More: BAK_Economics_Economic_Impact_Swiss_Financial_Sector_Executive_Summary.pdf (swissbanking.ch)