The economy of Switzerland is one of the world's most stable economies. Its policy of long-term monetary security and bank secrecy has made Switzerland a safe haven for investors, creating an economy that is increasingly dependent on a steady tide of foreign investment. Because of the country's small size and high labour specialisation, industry and trade are the keys to Switzerland's economic livelihood. Switzerland has achieved one of the highest per capita incomes in the world with low unemployment rates and a low budget deficit as a result of its finance industry. The service sector has also come to play a significant economic role.
As an effect of the industrial revolution which began in England at the beginning of the 19th century, Switzerland's agrarian sector decreased in size and thus the industrial sector started to increase in size from the mid 19th century on.
In the 1900s and by the beginning of the 20th century Switzerland's industrial sector was the largest and Switzerland was the wealthiest country in Europe by a considerable margin.
In the 1910s, during World War I, Switzerland suffered an economic crisis. It was marked by a decrease in energy consumption. (energy was mostly produced by coal in the 1910s, 1920s, 1930s and 1940s). The war tax was introduced. As imports were difficult, attempts were made to strengthen the Swiss economy. The cultivation of grain was promoted, and the Swiss railway became the first to use electric instead of coal-burning, steam-driven engines.
In the 1920s Switzerland's energy consumption increased.
Throughout the 1930s Switzerland's energy consumption stagnated.
In the 1940s, particularly during World War II the economy profited from the increased export and delivery of weapons to the German Reich. However, Switzerland's energy consumption decreased rapidly. The conduct of the banks cooperating with the Nazis and the commercial relations with the axis powers during the war became the subject of sharp criticism to such an extent, which even resulted in a short term international isolation of Switzerland from the world. After World War II, Switzerland's production facilities remained to a great extent undamaged which facilitated the country's swift economic resurgence.
In the 1950s, annual GDP growth averaged 5% and Switzerland's energy consumption doubled. Coal lost its rank the Switzerland's primary energy source, as other fossil fuels such as crude and refined oil and natural and refined gas imports increased. This decade also marked the transition from an industrial economy to a service economy. Since then the service sector has been growing faster than the agrarian and industrial sectors.
In the 1960s, annual GDP growth averaged 4% and Switzerland's energy consumption doubled. By the end of the decade oil was Switzerland's primary energy source.
In the 1970s GDP growth rates gradually declined from a peak of 6.5% in 1970 until contracting 7.5% in 1975 and 1976. Switzerland became increasingly dependent on oil imported from its main supplier, the OPEC cartel. The 1973 international oil crisis caused Switzerland's energy consumption to decrease from 1973 to 1977. In 1974 there were three nationwide car free Sundays when private transport was prohibited as a result of the oil supply shock. From 1977 onwards GDP grew, however Switzerland was also affected by the 1979 energy crisis which resulted in a short term decrease of Switzerland's energy consumption.
In the 1980s, Switzerland was affected by the hike in oil prices which resulted in a decrease of energy consumption until 1982 when the economy contracted by 1.3%. From 1983 on both GDP and energy consumption grew.
In the 1990s, Switzerland's economy was marred by slow growth, having the weakest economic growth in Western Europe. The economy was affected by a 3-year-recession from 1991 to 1993 when the economy contracted by 2%, also became apparent in Switzerland's energy consumption and export growth rates. Switzerland's economy averaged no appreciable increase (only 0.6% annually) in gross domestic product (GDP). After having unemployment rates lower than 1% prior to 1990, the 3-year-recession also caused the unemployment rate to rise to its all-time-peak of 5.3% in 1997. And thus, as of 2008, Switzerland is only on the fourth place among European countries with populations above one million in terms of nominal Gross Domestic Product per capita, behind Ireland, Denmark and Norway and to tenth place in GDP per capita at purchasing power parity (see list). On numerous occasions in the 1990s real wages decreased since nominal wages couldn't keep up with inflation. However, beginning in 1997, a global resurgence in currency movement provided the necessary stimulus to the Swiss economy. It slowly gained momentum and peaked in the year 2000 with 3.6% growth in real terms.
In the early 2000s recession, being so closely linked to the economies of Western Europe and the United States, Switzerland was not able to escape the slowdown felt in these countries. After the worldwide stock market crashes in the wake of the 9/11 terrorism attacks there were more announcements of false enterprise statistics and exaggerated managers' wages. In 2001 the rate of growth dropped to 1.2%, to 0.4 % in 2002 and in 2003 the real GDP contracted by 0.2%. That economic slowdown had a noticeable impact on the labour market. Many companies announced mass dismissals and thus the unemployment rate rose from its low of 1.9% in June 2000 to its peak of 3.9% in October 2004, although well below the European Union (EU) unemployment average of 8.9%. The consumer mood worsened and domestic consumption decreased. The exports of goods and services in the EU and the USA decreased as a result of the Swiss Franc's appreciation in value which caused an increase in prices of exported goods and services. On the other hand Switzerland's tourism sector slumped and room occupation rates by foreign guests decreased. Besides that a deficit of market competition in many branches of Switzerland's economy persisted.
Apart from agriculture, there are minimal economic and trade barriers between the European Union and Switzerland. In the wake of the Swiss voters' rejection of the European Economic Area Agreement in 1992, the Swiss Government set its sights on negotiating bilateral economic agreements with the EU. Four years of negotiations culminated in Bilaterals, a cross-platform agreement covering seven sectors: research, public procurement, technical barriers to trade, agriculture, civil aviation, land transport, and the free movement of persons. Parliament officially endorsed the Bilaterals in 1999 and it was approved by general referendum in May 2000. The agreements, which were then ratified by the European Parliament and the legislatures of its member states, entered into force on June 1, 2002. The Swiss government has since embarked on a second round of negotiations, called the Bilaterals II, which will further strengthen the two organisations' economic ties.
Switzerland has since brought most of their practices into conformity with European Union policies and norms in order to maximise the country's international competitiveness. While most of the EU policies are not contentious, police and judicial cooperation to international law enforcement and the taxation of savings are controversial, mainly because of possible side effects on bank secrecy.
Swiss and EU finance ministers agreed in June 2003 that Swiss banks would levy a withholding tax on EU citizens' savings income. The tax would increase gradually to 35% by 2011, with 75% of the funds being transferred to the EU. Recent estimates value EU capital inflows to Switzerland to $8.3 billion.