Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.
 
Scope completed the monitoring review for the Swiss Confederation (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AAA/Stable; short-term local- and foreign-currency issuer ratings: S-1+/Stable) on 1 August 2022.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

For the updated Rating Report accompanying this review, click here.

Switzerland’s AAA ratings are underpinned by i) its wealthy and well-diversified economy, highly skilled labour force and institutional strengths, including a stable, consensus-oriented and effective policy framework, which, in aggregate, underpin a high degree of economic resilience; ii) prudent fiscal management and authorities’ strong commitments to longer-term debt sustainability, underpinned by stringent and constitutionally-anchored budgetary rules as well as favourable financing conditions; and iii) a significant net external asset position, highly competitive exporting industries and the safe haven status of the Swiss franc. Challenges include i) a very large banking sector in relation to GDP, posing potential contingent liability risks to public finances; and ii) a gradual build-up of imbalances in the real estate market, supported by the low interest-rate environment, reflecting a continued increase in residential property prices. These risks are mitigated by the Swiss banking sector’s strong credit fundamentals, significant household wealth as well as the Swiss Financial Market Supervisory Authority’s prudent supervisory framework.

Switzerland’s formal withdrawal from negotiations over the institutional framework agreement with the EU in May 2021 prolongs uncertainty as concerns Switzerland’s near-to-medium-term financial and trade relations with the EU. This could hold potential negative effects on the Swiss economic outlook over the long term, complicating the process for establishing future trade agreements with its major trading partner. However, Switzerland’s core institutional, fiscal and economic credit strengths, as well as the long-standing safe haven status of the Swiss franc underpin the AAA-rating.

Economic effects of the Russia-Ukraine war remain limited for Switzerland, given the country’s low exposure in terms of trade and financial activities, except for supply bottlenecks and higher energy prices. The recent 50bps increase of the key policy rate by the Swiss National Central Bank will help counter inflationary pressures, which, however, remain more moderate compared to peer euro area economies, and strengthen the Swiss franc.

The Stable Outlook reflects Scope’s assessment that the challenges Switzerland faces remain manageable in view of the country’s outstanding credit strengths. The ratings/Outlooks could be downgraded if, individually or collectively: i) financial stability risks materialised with significant negative implications for the economic growth and public finance outlook; and/or, ii) the economic outlook worsened materially, for example due to a significant deterioration in relations with the EU and trade disruptions.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Rating Methodology: Sovereign Ratings, 8 October 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Julian Zimmermann, Senior Analyst

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