Switzerland retains ‘AAA’ credit rating despite coronavirus impact
The Alpine nation’s ‘stable outlook’ earned it the highest rating from the Fitch ratings agency.
The announcement, made on Friday, praised Switzerland’s “diversified and high value-added economy”. The country also benefited from its traditional strengths such as very large net external creditor position, high current account surpluses, and the global reserve currency status of the Swiss franc.
Fiscal prudence on the part of the government was also an important factor with the low government debt/GDP levels being one of the lowest across Fitch’s AAA economies. However, the Covid-19 pandemic is expected to swing the general government fiscal balance into a deficit of 8.5% of GDP in 2020 from a surplus of 1.2% last year largely due to fiscal stimulus packages.
“While the COVID-19 pandemic is having a substantial impact on the Swiss economy and the sovereign’s fiscal position, the solid starting position and institutional framework underpin our view that its policy response will support the economic recovery without eroding its ‘AAA’ credit fundamentals over the medium-term,” stated Fitch.
However, Switzerland’s large banking sector represents a large liability risk even though it did not affect the rating thanks to “sound credit fundamentals” like strong solvency ratios and high reserve requirements.
Fitch forecasts that Switzerland’s GDP will contract by 7% in 2020 and unemployment rate will rise from 2.3% in 2019 to 3.7% in 2020 and 4.3% in 2021.