Federal and cantonal economy: USI's viewpoint

Important economic issues have recently been discussed in both federal and cantonal current affairs. Luisa Lambertini, Rector of Università della Svizzera italiana (USI) and Professor of International Finance, and Mario Jametti, Full Professor at the Faculty of Economics and Director of the Institute for Economic Research (IRE), shared their insights on the radio programme "Seidisera" (Rete Uno, RSI) regarding the interest rate cut announced by the Swiss National Bank and the cantonal budget 2025.

The Swiss National Bank (SNB) has recently announced a 0.25 percentage point reduction in interest rates, bringing the benchmark rate down to 1%. The move was, however, expected, as Luisa Lambertini, Rector of USI and Professor of International Finance, noted. "It was a reduction that the markets had already anticipated and foreseen," she told Rete Uno. "It is explained by current inflation and by the inflation forecast, which is estimated to be just over 1% in the future." The Rector of USI also mentioned that there may be further reductions in the future, especially considering the appreciation of the franc. Luisa Lambertini explained that this not only hinders Swiss economic growth, but also suggests that the markets had anticipated a larger interest rate reduction. Continuing her analysis, the Rector commented on the SNB's most recent period: "It was a tumultuous period marked by international events beyond Switzerland's control, which necessitated firm intervention. Thomas Jordan (who has been at the helm of the SNB for 12 years and is nearing the end of his term [EN]) took over when the Swiss Franc had a minimum exchange rate of 1.2 with the Euro. He managed its abandonment and then had to navigate the challenges posed by COVID-19 and the invasion of Ukraine, both of which led to inflation. However, these inflation dynamics were eventually brought under control. Additionally, the Credit Suisse crisis was effectively managed, averting a second financial crisis." Luisa Lambertini also commented on the increase in insurance premiums, noting that "the basket of goods and services should take this into account."

In the past few days, this time at the cantonal level, there has also been talk of the canton's 2025 budget, approved by the Ticino Council of State. A budget that confirms a deficit of CHF 64 million, thus increasing the public debt to CHF 2.7 billion. Interviewed by the radio programme "Seidisera" Mario Jametti, Professor at USI Faculty of Economics and director of the Institute for Economic Research (IRE), said: "It is important to put these absolute figures into context. For example, the deficit of 64 million out of a total expenditure of 4.5 billion represents a deficit of 1% of expenditure, which in the forecasts provided by the canton will grow to 3%." This deficit is relatively small, especially considering the current difficult conditions. "The case is similar for public debt, which is increasing at the same rate as economic output. Therefore, the ratio between public debt and gross domestic product remains fairly stable, only slightly higher than in other cantons."

In the discussion between the supporters of financial rigour and those in favour of so-called laissez-faire, it would, therefore, be good to find a tolerance threshold, if one exists. "The tolerance threshold is a political choice. Rather, the scientific debate revolves around the level of financial discipline required for the effective operation of the government. This debate has been revisited over time, particularly when interest rates were negative." Professor Jametti commented. What also emerges today is the desire for everyone to participate in these efforts, all areas and all departments. Therefore a good choice would seem to be linear cuts. "Theoretically, it may seem like a good choice, but in reality, it rarely is. From an economic perspective, if you are able to produce the same goods and services using fewer resources, it makes an efficiency argument, which is why economists usually support this type of cost reduction. However, when the quality and level of service are affected, organizations like the IRE can make a valuable contribution, so called evidence-based policy. In English, we refer to evidence-based policy, which means making policy choices based on the scientific assessment of the problem. Therefore, the issue is scientifically determining the various cuts' impacts." Mario Jametti concludes.

The complete episode of the "Seidisera" featuring Luisa Lambertini's interview is available at the following link, while the one featuring Mario Jametti's interview is available at the following link.