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Vote to curb immigration credit negative for Switzerland, Swiss banks

19 February, 2014

The outcome of the February 9 referendum, where a narrow majority of Swiss voters supported an initiative aiming to impose quotas limiting immigration into Switzerland is credit negative for the Swiss sovereign (Aaa stable) and Swiss banks, Moody's Investors Service said in a Special Comment.
According to the rating agency, limiting immigration is likely to affect the country's growth potential, wealth and overall economic strength. Over the past decade, Switzerland benefited from the strong inflow of highly-qualified workers. Moody's believes that this has helped mitigate the adverse effects of population ageing and skilled labour shortages, thereby positively contributing to employment and economic growth.
Moody's also believes that the outcome is credit negative for Switzerland's banks' asset quality and, potentially, capitalisation. The introduction of quotas on labour immigration could reduce housing demand, thereby exerting pressure on residential house prices, and potentially leading to a faster-than-anticipated slowdown in residential housing markets. In addition, negative repercussions on Swiss-EU trade may put pressure on export-oriented businesses, thereby leading to weaker corporate asset quality.
The degree of the initiative's economic implication on Swiss-EU trade depends on the specificities of its legal implementation over the next three years. The government has yet to define an upper limit on the total number of annual immigrants and could have to re-negotiate a package of bilateral agreements between Switzerland and the EU. If there are strictly binding limitations on immigration that dismiss existing bilateral agreements, current trade facilitations between Switzerland and the EU could be partially withdrawn.