Macro thoughts on the Swiss referendum

Switzerland’s emotive “No to 10 million” referendum on June 14 seems to be too close to call. We doubt it will be a game-changer economically.

Switzerland’s current population is 9.1 million. It has been growing at roughly 1% per annum on average for the last 15 years or so. The referendum seeks to cap the population at 10 million from 2050 by imposing increasing constraints on migration.

Restrictions on asylum-seeking and family reunification would be triggered if/when the total reaches 9.5 million; more significant steps to cut migration would ensue at 10 million (which the Federal Statistical Office currently estimates might happen around 2040 – implying some slowing of trend growth anyway as things stand).

If the referendum is passed, it might affect the economy directly, by limiting labour supply; and indirectly, by threatening Switzerland’s relations with its most important trading partner – the EU.

Any direct impact would not take effect for several years at least, and the link between Swiss GDP and population growth historically has been pretty fluid. To the extent that less migration does mean less GDP growth, living standards might not be affected much anyway.

A bigger economy is not necessarily one in which living standards are higher: they depend on GDP per capita, whose trend annual growth rate has varied between 0.4% and 1.1% in the last decade, independently of population growth.

Admittedly, stock market investors are usually more interested in size per se, not in per capita metrics – but not in Switzerland. The companies quoted in the SMI generate perhaps nine-tenths of their earnings outside Switzerland to begin with. Property prices might be dented, but that remains a longer-term consideration given structural supply constraints (though in some quarters such an adjustment might be welcome given affordability concerns).

An indirect impact might be felt if the end of free movement of people were to jeopardise the recently concluded deal with the EU. Reduced access to EU markets would hit exports and Swiss living standards for sure. However, it could take several years – and no doubt many rounds of negotiations – to materialise. This assumes that the EU Itself remains committed to free movement.

There would of course be wider social issues to consider also (these are the reason for the referendum in the first place). If they affect international appetite for the franc, or the outlooks for inflation and the profitability of local businesses (to the extent that it matters to the SMI), they could affect Switzerland’s investment appeal.

There could be an announcement effect too: the measures to curb migration may not take effect for years, but the referendum result itself could trigger an anticipatory market response now. But the behaviour of the franc recently suggests the vote is not uppermost in investors’ minds.

Switzerland is our favourite economy, topping our league table of all-round international performance during the 2014-2024 period. It is prosperous, growing, and stable. We doubt a “yes” vote would do much to change this.

More generally, a less cosmopolitan Switzerland might have a different look and feel. Local politics might be changed more profoundly. As with the economy, though, in the wider international context, Switzerland’s governance starts from a position of strength.

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