Swiss growth: why GDP can rise without improving living standards

Swiss GDP per capita: why growth may not improve living standards

Swiss GDP can rise without residents becoming better off, notably for three reasons: the population grows, prices rise and additional income is not distributed equally. It is essential from the outset to distinguish nominal GDP, measured at current prices, from real GDP, which measures changes in the volume of output. Inflation can increase the former; it does not directly explain a rise in the latter.

A rise in nominal GDP is therefore not enough to establish an improvement in living standards. We need to look at real output per capita, then household income and spending.

Reading guide

Swiss GDP per capita measures average output per person, not a wage or disposable income. The annual national accounts of the Federal Statistical Office are the national reference.

This guide explains how to interpret this indicator and its limitations. It does not provide a numerical assessment of its recent evolution or an international ranking.

Why can GDP rise without improving living standards?

Real GDP growth signals an increase in activity in volume terms. It guarantees neither more output per person nor an improvement in household budgets.

Higher total output, but less per person

Entirely hypothetical example: real GDP rises by 1%, while the population grows by 2%. Real GDP per capita then changes by:

1.01 ÷ 1.02 − 1 ≈ −0.98%.

The economy produces more overall, in volume terms, but average output per person falls by around 1%.

The relationship also works the other way: real GDP growth exceeding population growth leads to an increase in real GDP per capita. However, it does not tell us which households benefit from this increase.

From wages to the budget actually available

Real wages in Switzerland depend on nominal wages and consumer prices. Their evolution is calculated by dividing the nominal wage index by the consumer price index, using compatible bases:

Real wage index = nominal wage index ÷ price index × 100.

The FSO’s Swiss wage index measures wage changes while limiting the effect of changes in the structure of employment. It should therefore not be confused with changes in the average wage actually paid to all employees.

Methodological reference: FSO, factsheet for the Swiss wage index (SWI), available in the Wage growth section, for the scope and calculation method of the index.

Consumption also depends on employment, social benefits, taxes, accessible savings and budget constraints. A household can maintain its purchases by drawing on savings, without any lasting improvement in its situation.

Why inflation does not capture all expenses

Direct taxes and compulsory health insurance premiums are not part of the Swiss consumer price index basket, because they do not correspond to the direct purchase of a consumer good or service.

This does not mean that healthcare is absent from the index: the prices of healthcare goods and services, such as medicines or the medical and hospital services included in the basket, are tracked separately. Changes in premiums are not the same as changes in the prices of these goods and services.

Methodological references: FSO, Swiss Consumer Price Index (CPI) — Frequently asked questions, explanations on taxes and health insurance premiums; FSO, Health Insurance Premium Index (H premiums), which measures, among other things, the effect of premium changes on disposable income. These documents are available through the Swiss Consumer Price Index section.

Finally, neither Swiss GDP per capita nor the average wage shows who benefits from the gains. Disposable income, its distribution and household composition complete the picture.

The FSO tables entitled Household income and expenditure, drawn from the Household Budget Survey, distinguish income, compulsory payments and consumption expenditure. Their breakdowns by income group and household type make it possible to look beyond the national average, which does not describe every individual situation.

What exactly does Swiss GDP per capita measure?

The general formula takes two forms:

• Nominal GDP per capita = annual GDP at current prices ÷ reference population for the same year. It expresses a monetary value per person, for example in current CHF.
• GDP in volume terms per capita = annual GDP in volume terms ÷ reference population for the same year. It is used to track changes in output per person excluding price effects. It may, for example, be presented as an index or a rate of change.

GDP measures output produced within a territory. GDP per capita relates that output to a population, but does not represent a sum distributed to each resident.

The choice of denominator matters: an annual average population is not the same as a population count on 31 December. Similarly, the permanent resident population cannot be replaced by a different demographic scope without justification.

For Switzerland, the demographic definition must be the one specified in the metadata of the FSO table used. The numerator and denominator must cover the same year and belong to consistent series.

As an international reference, the World Bank defines its GDP per capita indicator as GDP divided by the midyear population. This international convention is not sufficient to establish the convention used in a Swiss national table.

Source: World Bank, metadata for the indicator “GDP per capita (current US$)” — NY.GDP.PCAP.CD.

Which publication should you use?

The FSO is the reference for annual national accounts. SECO publishes, among other things, quarterly GDP estimates.

A recent total quarterly GDP figure does not automatically constitute a new annual per capita value. The publication date, the year observed and the statistical vintage answer three different questions: when was the figure published, which period does it describe and which revisions does it incorporate?

To quote an observed value, you therefore need to specify the period, unit, price basis, demographic scope, publication vintage and source table.

GDP per capita in CHF, euros, dollars and PPP: what are the differences?

Units and price bases are not interchangeable.

In Switzerland, GDP series in volume terms rely on chain-linked measures: changes calculated at the previous year’s prices are linked together to form a time series. It is therefore more accurate to speak of GDP in volume terms than to assume an unchanged basket of prices throughout the period. The reference year is used to express the series; it does not mean that all calculations use the fixed prices of that year.

Swiss methodological reference: SECO, methodological documentation for the Quarterly National Accounts, sections on values at the previous year’s prices and the chain-linking of volume series. This documentation is provided in the “Documents” section of the Quarterly gross domestic product page. It describes the Swiss method; the metadata of an international indicator are not a substitute for it.

Converting an annual value into euros or dollars

To convert an annual flow for comparison purposes, it is generally appropriate to use an annual average exchange rate, rather than the current daily rate. However, the conversion convention defined by the source of the series being compared must take precedence.

The Swiss National Bank publishes exchange rates in its “Exchange rates, yearly” table. For the euro and the US dollar, rates are quoted in Swiss francs per unit of foreign currency: the CHF amount is therefore divided by this rate to obtain the amount in EUR or USD.

This conversion changes the unit in which the value is expressed. It adjusts neither for inflation nor for differences in the cost of living between countries. An appreciation of the franc can therefore increase GDP expressed in dollars without any rise in real output.

Comparing purchasing power

Purchasing power parities adjust for differences in price levels across economies. International dollars are neither a convertible sum nor a bank balance.

PPP makes comparisons of output more meaningful when price levels differ significantly. However, it does not turn GDP into household income or describe inequalities.

Source: World Bank, metadata for the indicator “GDP per capita, PPP (current international $)” — NY.GDP.PCAP.PP.CD.

What difference do series adjusted for major sporting events make?

The activity of international sports organisations based in Switzerland affects GDP, notably through broadcasting and marketing rights for major competitions. The schedule of World Cups and Olympic Games can therefore cause fluctuations that do not correspond to a broad-based acceleration in the economy.

SECO publishes series adjusted for sporting events to make underlying economic conditions easier to interpret.

Reference: SECO, explanatory note on adjustment for sporting events and GDP series adjusted for sporting events, available alongside the Quarterly gross domestic product data.

Three statistical treatments remain distinct:

• Seasonal adjustment: aims to remove fluctuations that typically recur throughout the year.
• Working-day adjustment: aims to remove the effect of variations in the number and distribution of working days across the calendar.
• Sporting-event adjustment: dampens specific fluctuations associated with major international competitions.

Methodological reference for the first two treatments: SECO, methodological documentation for the Quarterly National Accounts, section on seasonal adjustment and adjustment for calendar effects, available in the “Documents” section of the same page. This documentation distinguishes the treatment of seasonal fluctuations from that of working days; the note on sporting events concerns an additional adjustment.

Changes with and without sporting-event adjustment must be compared for the same period, with the same other adjustments and within the same publication vintage.

The adjusted series makes underlying real growth easier to interpret. It measures neither purchasing power nor income distribution.

Why does high GDP per resident not mean high income for everyone?

GDP describes output within a territory, whereas household disposable income depends on the income households receive, transfers and compulsory payments.

Cross-border workers illustrate this difference in scope: their output contributes to the GDP of the territory where they work, even though they are not part of its resident population. However, the significance of this effect in Switzerland cannot be inferred from the number of cross-border workers alone.

Conceptual reference: Eurostat, *National accounts and GDP*, explanations of the limitations of GDP per capita in economies where cross-border work is significant.

Even when real output per capita rises, households may benefit unequally from the gains. Disposable income, its distribution and unavoidable expenses therefore remain essential to assessing living standards.

Which indicators should employees and SME managers watch?

Swiss GDP per capita describes a general trend, not your budget or your order book. When making decisions, it is better to follow indicators that closely reflect your situation.

Employees: measuring what is actually left

Real wages help you check whether pay is keeping pace with prices. But you also need to consider job stability, working hours and disposable income after compulsory payments.

Then examine unavoidable expenses: housing, health insurance, transport or childcare. A pay rise may be absorbed by these items. Changes in your budget may therefore differ from those in the average basket used to measure inflation.

SMEs: monitoring markets and costs

Focus on demand in volume terms in your sector, order books, costs and financing conditions. Rising revenue may simply reflect higher prices.

For an exporting SME, add the exchange rate and demand in customer markets: high GDP in dollars guarantees neither additional sales nor higher margins.

Conclusion: looking beyond the headline figure in Swiss growth

A rise in real GDP indicates an increase in output, not necessarily an improvement in living standards. To assess the latter, return to three benchmarks: real output per capita, disposable income and expenses actually borne.

The headline figure provides context. Demographics, prices and income distribution explain why households’ experiences can be very different.