Bond Outlook May 30th

Geneva is to Switzerland as Spain is to the euro zone. In Spain foreign buyers of secondary residences and retirement homes have pushed up property prices in an environment of low interest rates over which the Spanish themselves have negligible influence. Replace foreign home buyers with multi-nationals and financial service firms setting up in Geneva, and the ECB with the SNB, and the parallel is striking. The bubble has burst in Spain, but looks far from bursting in Geneva.

The property boom in Geneva is one aspect of an economy which is enjoying a privileged relationship with the EU, but still maintains its own currency and interest rates. To the above parallel with Spain can be added another, more favourable, one – that with the UK. The UK continues to attract inward investment, and people, this time workers from the new members of the EU. Their labour, relatively low wage demands and their spending are significantly contributing to the UK GDP, but also to overcrowding and high property prices. It is much the same for Switzerland as a result of the “bilaterals” allowing their neighbours to work in the country either as residents or as “frontaliers”.