Stronger Franc Hurts Swiss Exporters

The Swiss economy contracted at its fastest rate in six years, with GDP falling 0.2 percent in Q1, as the nation’s export capacity suffers from a stronger currency. Exports fell 2.3 percent in the first three months of 2015.

The Swiss economy contracted at its fastest rate in six years, with GDP falling 0.2 percent in Q1, as the nation’s export capacity suffers from a stronger currency. Exports fell 2.3 percent in the first three months of 2015.

Critics contend that the Swiss central bank’s policy of removing a cap on the franc last January is causing the economy to slip into recession territory. The country’s manufacturing sector in particular has the most to lose. Pharmaceuticals and chemicals are two areas of the export sector hit the hardest. Other areas, such as electronics and watches, have also suffered. Revenues in the manufacturing sector fell 8.1 percent in Q1, and orders dropped 17.1 percent.

The franc surged 15 percent in value against the euro, hurting many industrial companies that rely on a weak franc to prosper. Karsten Junius, an economist from the Swiss-based Bank J Safra Sarasin Ltd., believes the first signs of recession are apparent, and the second quarter may yield lackluster results. However, the central banking is singing a different tune, stating that Switzerland will only see a single bad quarter, and there is no indication of an impending recession. Other analysts share the same optimistic view, with economist Johannes Gareis asserts that consumption and decreasing inflation will propel in the economy forward in 2015. Consumption has gone up, and the Swiss people are benefitting from cheaper imports.

The bank predicts Swiss growth to be under 1.0 percent for 2015, which is one-half of the growth rate achieved when the franc was under the cap. The bank’s decision to abandon the cap has yet to garner widespread criticism in Switzerland, but the Social Democratic Party, the second largest party in parliament, has urged a new minimum exchange rate. Trade union Unia even went so far as to call for the resignation of the bank’s board members. Critics of an uncapped currency are concerned about a slowdown in growth and rising unemployment numbers.

According to data from the International Monetary Fund, Swiss unemployment may rise to moderate levels throughout the year. Companies may react to the exchange rate blow by cutting more jobs, and analysts believe the economy will continue to falter as the production weakens. However, massive job cuts have not occurred, and the country’s unemployment rate fell to 4.4 percent in Q1. On the other hand, the IMF predicts a growth slow-down of 0.75 percent in 2015, and Swiss institute KOF believes the Swiss economy can expect below-average growth going forward.