Swiss "made" learned to live together with strong franc

7 years ago - Published in Finance, Fundamental Analysis

The recent appreciation of the Swiss franc has sent shockwaves through Swiss firms, resulting in job losses and lower research budgets. But viewed long-term, Switzerland’s export-driven economy has adapted remarkably well to a strong currency, according to a government report published on Tuesday.

This is the overall conclusion of five studies, commissioned by the State Secretariat for Economic Affairs (Seco), released on Tuesday. They examined the aftermath of the so-called Swiss franc shock, which was triggered when the Swiss National Bank (SNB) ended its longstanding ceiling of CHF1.20 to the euro almost three years ago. That move suddenly made Swiss exports 10% more expensive and cut Swiss economic growth to 0.6% in 2015 from 1.8% a year earlier. 

The improved products trend was particularly marked in industries like watchmaking and machinery where research and development, branding and promotional spending were especially important, the researchers said.

The findings were part of a series of reports written to examine the aftermath of the so-called Swiss franc shock, triggered when the Swiss National Bank ditched its longstanding floor of 1.20 francs to the euro nearly three years ago.

A study by the BAK Economics research institute also suggests that Switzerland’s export industry is highly adaptable. 
“The goods exporters in Switzerland are more resilient than in other countries,” they wrote. “But on the other hand, the resilience of the service industry to currency effects is lower.”
Swiss unemployment, which is traditionally low and stable, rose slightly after the franc shock to an average rate of 3.2% in 2015 and 3.3% in 2016, it has since dropped back to 3.0% in September this year.

Still industrial companies have borne the brunt of the job cuts, the studies showed, with average industrial company reduced its workforce by 4.6 percent in the two years after the currency shock, wrote researchers from ETH Zurich, a university.

Companies remained cautious about increasing their staff despite the recent weakening of the franc, the researchers said.

Going forward, the sustained profit squeeze has meant many companies are investing less in their businesses, a trend which could damage their long term competitiveness, said one group of researchers from the BSS Economic Consultants and ETH.

“Because the manufacturing sector is exposed to an above average extent, a long period of overvaluation could lead to an acceleration of deindustrialisation,” they wrote.