Comprehensive Economic Analysis of Switzerland - Term Paper Example

 Table of Contents Executive Summary 1 Introduction 2 Literature Review 3 Gross domestic Product 4 Inflation 4 Exchange rate 5 Analysis and Description of Data 5 Economic growth (rate of increase of real Gross Domestic Product) 6 Inflation (rate of increase of consumer prices) 6 Exchange rate (currency value against the US dollar) 7 Interpretation 8 Reflection and Conclusion 9 Bibliography 11 Executive Summary The inherent report forms part of the Economic Intelligence Unit task objective that aimed at analyzing economic stability of Switzerland and other contributing factors. The economic report analysis would be imperative for the US-based multinational company that deals in the international manufacture and sale of products, in considering the possibility of expansion in Switzerland. Evaluating the economic situation of Switzerland, a country that provides one of the largest market for the company would also be authoritative in analyzing the current productivity of the company in the country. The report presents a comprehensive economic analysis of Switzerland by examining the economic growth rate in relation to its Growth domestic product (GDP), inflation rates of the country, and exchange rates. It is imperative that comprehensive analysis of three aforementioned factors would be vital in accessing the economic status of Switzerland. Consequently, the company’s management would have the opportunity to make economically sound decisions on whether to expand its investment in the country. Based on the economic analysis explored, the report also provides a detailed and forecasted recommendation that elusively elaborates the rationale of expanding the company’s investment in Switzerland. The inherent recommendations and economic analysis report presented in the report based on factual data would be imperious for the Company’s executive management in executing the need for international expansion in Switzerland. Based on the economic analysis of Switzerland with detailed examination of its economic growth rate, inflation rate, and exchange rates, the report established a domineering opportunity for expansion of the company. The report established that Switzerland remains as one of the economic secure country in relation to economic stability. The country has have a banking system that operates in a unique way making all operations within Switzerland devoid of economic recession issues. In addition, the country prides in the lowest inflation rate compared to other European countries around its locality and internationally. Moreover, the secure banking sector have strict regulations from the national government making its exchange rate system to remains as the most stable. The inherent economic factors that directly conforms to effective indicators for economic growth considerable makes Switzerland as the most favorable country for expansion of the company. However, the country’s relations with the European Union may require a further comprehensive review and decision making before expansion of the Company in Switzerland. It is indispensable to note that the country have not have not fully registered as a member of the European Union. Switzerland only made preliminary steps in joining European Union in 2002 when it secured passport-free Schengen zone (British Broadcasting Corporation, 2014). However, the country still has various disputes with the European Union community over immigration concerns. Highlighting the country’s international relation with European Union and subsequent elaborate review would be imperative before the country considers its decision of expansion in Switzerland (British Broadcasting Corporation, 2014). Introduction The report inherently discussed is vital for the company in making economically sound decision of the possibility of expansion in Switzerland. Foreign investment remains as one the most unsecure business venture that its success requires comprehensive research and establishment of mitigation factors. The report conducted after request by the Chief executive officer of the Company would address the uncertainties that may exists in Switzerland over expansions considerations. Besides providing an elaborate economic indicator analysis, the report provides the most plausible rationales for expansion of the company in Switzerland. The other sections of the report involves a presentation of literature review on the microeconomic indicators of growth. The section provides the conceivable theoretical background of how GPD, inflation, and exchange rate can directly affect the economic stability of a country. It is imperative that the section analyses the microeconomic indicators of economic growth with an elusive consideration of the current state of Switzerland. Thereafter, the reports presents an inclusive overview of the contemporary economic situation in Switzerland with closer emphasize on the aforementioned microeconomic indicators. The next section of the report involves a detailed economic and investment interpretation based on the provided actual and historical economic data of Switzerland. The last section of the report is an all-inclusive fundamental analysis that provides the most tenable recommendations of whether the company should consider an expansion in Switzerland. Literature Review In contemporary business besieged by economic recession and instability, a company must consider conducting a comprehensive analysis of external influential factors before making investment. In addition, companies that aims at engaging in foreign investment must consider all the uncertainties that may face the economic stability of the host country. Elaborate consideration of economic factors is imperative for the company’s success in an alien country. The most influential and fundamental external factor that an investing company needs to consider is economic development characteristics of the host country. An inclusive economic development analysis would enable the company the project its success. Economic development and stability within a country directly relies on its GDP, inflation rate, and exchange rate. The three factors remains as some of the most basic indicators of economic growth or development of a country. Based on the aforementioned influential indicators of economic growth the inherent economic intelligence unit study focuses on GDP, inflation, and exchange rate of Switzerland. Gross domestic Product Gross domestic product relates to the conventional measure of the final value of services and goods manufactured within a country during a particular time after subtracting the value of imports (OECD, 2014). It is imperative to understand that GDP forms the most effective measure of individuals’ material living standards and not rather an operational gauge of societies’ well-being. Therefore, the GDP product of a country directly indicates its level of economic growth by highlighting its productivity in exporting goods and services. As a country engages in production of more goods and services, its economy develops steadily, an indicator that there exists a direct correlation between economic growth and GDP. Therefore, an increased GDP of a country directly indicates that the country continues to grow economically while the vice versa remains true. Inflation Inflation relates to a sustained increment in the general price of services and goods within an economy overtime. Apparently, inflation of a country remains as another conceivable indicator and measure of economic stability and growth. It is imperative to understand that effects of inflation in causing intermittent prices of goods and services have led to creation of economy price indices, which defines the pricing. For instance, inflation which acts as a price index is essential in measuring increase in prices within a country while consumer price index assists in estimating the measure of services offered to a customer or goods that the latter have purchased. It is indispensable that there exists no standard constancy of inflation among countries as it fluctuates constantly depending on the economic status of a country. Besides ability of inflation to indicate social unrest, it acts the most significant indicator for favorability of investment in a specific country. Inflation is imperious for investors in a foreign country as it defines the market price levels for their products enabling them to make informed decisions during production. Besides indicating price levels of products in the market, inflation directly influences currency exchange rates and plays a fundamental role in international trade. Exchange rate Exchange rates defines prices of buying or selling other currencies based on the standard international criteria. Exchange rates remains under direct influence by either government policies, trends of world currency, and international policies or standards. It is imperative to understand that exchange rates directly affects the demand of goods and services offered within a specific country. Normally, demand for imported goods always depreciates when a country’s currency devaluates with the opposite being true. Demands for goods decreases in cases of devaluation of currency mostly due to decline in consumers purchase abilities. Analysis and Description of Data According to trading economics, 2014 analysis, Switzerland remains as one the countries with the highest per capita GDP. In addition, the country’s economy prides in low unemployment levels and healthy skilled labor. It is imperative that Switzerland’s banking secrecy and long-term monetary security have largely contributed to the surge in investing within the country. Currently, Switzerland’s economy thrives on the constant tide of foreign investment that aims at benefiting from the country’s high labor specialization and secure banking system. Economic growth (rate of increase of real Gross Domestic Product) According to economic analysis of trading economic, 2014, the GDP of Switzerland stagnated at 0 percent within the second quarter of 2014 until the next quarter. However, the country’s GDP remained average from 1980 to 2014 at 0.42 percent. In 2008 that formed the fourth quarter of analysis, Switzerland recorded the lowest GDP of -2.20 percent compared to 1989 when it had the highest rise in GDP of approximately 1.90 percent (Tradingeconomics.com, 2014). The line graph below indicates Switzerland GPD growth rate from 1990 to 2014. (Adapted from Tradingeconomics.com, 2014). Inflation (rate of increase of consumer prices) Switzerland measures its inflation rate by considering the fall or broad rise in prices that the country’s consumers remit mainly for a defined basket of goods. It is essential to comprehend that the inflation rate within the country remained at 0 percent in October 2014 (Tradingeconomics.com, 2014). In addition, Switzerland’s inflation rate averaged between 1956 and 2914 at 2.57 percent. The inflation rate reached a maximum of 11.92 percent in 1973 while the lowest was -1.37 percent recorded in June 1959. The graph line below indicates Switzerland’s inflation rate from 1990 to 2014. (Adapted from Tradingeconomics.com, 2014). Exchange rate (currency value against the US dollar) In October, there existed a decrease in US Dollar from 0.95 in 2014 September to 0.94 Swiss Franc in 2014 October. According to historical data based on Switzerland’s exchange rates, Swiss Franc attained the highest record of 3.88 in 1972 April with the lowest recorded in 2011 August at 0.72. However, the Swiss Franc averaged at 1.63 between 1972 and 2014 (Tradingeconomics.com, 2014). The graph line below shows the Swiss Franc to US Dollar historical currency exchange data between 2000 and 2014. (Adapted from Tradingeconomics.com, 2014). The bar graph below also indicates the Swiss Franc/US Dollar exchange rates from 1993 to 2013. (Adapted from Focus Economics, 2014) Interpretation The aforementioned data relating to GDP, inflation rate, and exchange rates indicates that Switzerland remains the most favorable country for the company to consider its expansion. With an inflation rate of 0 percent in 2014, the country remains as the safest investment region. Lack of inflation indicates that the company would not face unimaginable uncertainties that may derail its development. In addition, the company would have the most formidable opportunity to forecast on market trends by establishing products prices. Planning for market’s products pricing would be easier in Switzerland owing to the predictable low inflation rates (Tradingeconomics.com, 2014). Moreover, the averaged inflation rates recorded over the years from 1956 to present 2014 indicates that the rates would not increase to unmanageable levels in the near future. Therefore, the company remains at the best position to expand in the country and maximize profits. According to the obtained data, Switzerland prides in one largest per capita GDP in the world. As indicated earlier, an economy with the highest GDP remains poised to grow spontaneously. The data indicated above highlights that Switzerland would remain as the most stable economy even in the future to the observed high rates of GDP. Consequently, the company would have the best opportunity to expand following the forecasted growth in Switzerland’s economy cognizant to the healthy GDP as an indicator. According to the historical data on exchange rates, Switzerland remains the most stable country with minimal devaluation rates. Moreover, the data indicates a smallest drop in exchange rates, a factor that explains why the country involves lesser financial risks. Reflection and Conclusion In conclusion, the US-based company have the best opportunity to expand its investment in Switzerland mainly due to the country’s good indicators of forecasted economic growth. The secrecy banking sector and stable economy makes Switzerland a haven of investment. Moreover, the large population coupled with stable inflation rates contributes to the rationales that makes Switzerland’s economy the most favorable for investment. Moreover, the long-term monetary security practiced by the country helps protect it from any potential economic recession. However, before the company considers its expansion in Switzerland, it should conduct a market assessment opportunity including other influential factors as competition and availability of resources. In addition, an internal assessment of the company would be indispensable in addressing any viable risks that may result. It is imperative to restate that the report was authoritative in enhancing my economic analytical skills besides providing more insights into global economic trends. Bibliography British Broadcasting Corporation (BBC). (February 9, 2014). News Europe: Switzerland profile. Web. November 20, 2014. Retrieved from http://www.bbc.com/news/world-europe-17980650 Focus Economics. (2014). Switzerland: Exchange Rate. Web. November 20, 2014. Retrieved from http://www.focus-economics.com/country-indicator/switzerland/exchange-rate Organization for Economic Co-operation and Development (OECD). (2014). Data: Gross domestic product (GDP). Web. November 20, 2014. Retrieved from http://data.oecd.org/gdp/gross-domestic-product-gdp.htm Tradingeconomics.com. (November 20, 2014). Switzerland exchange rate. Web. November 20, 2014. Retrieved from http://www.tradingeconomics.com/switzerland/currency Tradingeconomics.com. (November 20, 2014). Switzerland GDP growth rate. Web. November 20, 2014. http://www.tradingeconomics.com/switzerland/gdp-growth Tradingeconomics.com. (November 20, 2014). Switzerland inflation rate. Web. November 20, 2014. http://www.tradingeconomics.com/switzerland/inflation-cpi Read More