The Covid pandemic has reshaped the global economy. It produced an exogenous shock that caused upheaval across the globe between 2020 and 2022, leading to a new world order.

The global economy has become more fragmented, and the gap between countries benefiting from that fragmentation and those in difficulty, including struggling European nations, has grown wider. So as a new era begins, it is worth asking how Switzerland’s finance industry can continue to prosper in this fractured landscape.

As four billion consumers frenetically resumed their spending following the unprecedented and lengthy lockdowns, inflation hit hard just as it seemed to have been defeated. To deal with the spike in prices, central banks took drastic action and raised interest rates. But monetary tightening inevitably stifled growth, with Europe particularly badly affected.

Deficit

With interest rates gradually returning to normal, the focus shifted to the huge deficits accumulated by all countries, caused by the colossal cost of supporting economies through the pandemic. Although large deficits can be tolerated in the United States, they are less acceptable in Europe, where they are probably regarded as structural and unsupported by a reserve currency like the US dollar.

Switzerland, meanwhile, has been resilient because of its solid fundamentals and the stable Swiss franc, which has become a safe haven.

The country has no structural deficits, which gives it significant room for manoeuvre during an economic contraction. Its relative immunity against price pressures allows the Swiss National Bank (SNB) to take a flexible approach to monetary policy.

In the long term, however, the strong franc may be a drag on the profits of Swiss companies. If they are to continue growing despite their strong currency, at a time when Europe, Switzerland’s main economic partner, is on the brink, not just economically but politically and socially as well, they will need to be agile and adaptable.

Crises always highlight weaknesses. Today, Europe appears to be polarised and threatened with recession because it lacks a coherent economic strategy and sufficient political unity to give fresh momentum to the flagging European project. This growing fragility is reflected in the performance of the euro.

The UK, meanwhile, has paid a high price for its independence with Brexit, and only an upturn in business investment will allow it to escape recession in 2025. China used to be the main driver of global growth but is now being paralysed by state intervention. Since the pandemic, China has lost its status as a trusted partner. Beijing’s statements of intent are no longer enough: a change in political ideology is required for the country to regain credibility. India is now a leading player in Asia. It is becoming a top-tier economic power because of its much stronger GDP growth, while Japan is also getting a second wind after finally emerging from deflation.

In this new cycle – characterised by significant growth differentials within the OECD, endemic deficits and structurally higher interest rates – countries are turning inward in an attempt to stabilise their economic output. The return of protectionism marks the end of a period in which globalisation was the main driver of world growth.

Only the nimblest economies are performing well. The United States is more powerful than ever, as the development of new technologies fuels and funds its economic growth. The reintroduction of tariffs – spurred on by trade rivalries, particularly between the United States and China – is further strengthening US supremacy.

Credibility

Populists are omnipresent, reflecting the inexorable rise of nationalism. Comments by political leaders are raising growing concerns about their political and economic intentions, and as well as doubts about the openness of their domestic markets. The war taking place in Europe is redefining the continent by making defence a key spending priority. The conflict in Ukraine is leading to a new doctrine in Europe, with the desire for greater autonomy aside from NATO, but also a new approach to technological developments.

Against the backdrop of all this upheaval, Switzerland’s ability to maintain its credibility helps it stand out.

According to a recent Deloitte Switzerland report*, the country maintained its leading position in the international wealth management market in 2024, in terms of both size and competitiveness.

For decades, the Swiss finance industry has been able to evolve and prosper in a globalised world. It must now learn how to remain competitive in an environment that is fragmented in all respects, with a weakened and war- torn Europe on its doorstep, and facing new types of competitors like Singapore and the United Arab Emirates. The SNB’s autonomy, independence and agility ensure that Switzerland’s economy and currency remain stable, and that confidence in them remains high. Switzerland must maintain its integrity and neutrality, as well as the continuity of its policies, if it is to protect its unique status.

*The Deloitte International Wealth Management Centre Ranking 2024, Jean-Francois Lagassé and Patrik Spiller, October 2024