Swiss Economy Defies Doomsday Predictions

Despite dire warnings from Swiss corporations, Switzerland’s economy continues to excel. The Swiss business community and various analysts warned of drastic economic decline when the Swiss National Bank lifted a cap on the franc in January 2015.

Despite dire warnings from Swiss corporations, Switzerland’s economy continues to excel. The Swiss business community and various analysts warned of drastic economic decline when the Swiss National Bank lifted a cap on the franc in January 2015.

According to some in the business sector, many companies are struggling against the franc’s rise in value against the euro. Employers in such sectors as metals and machinery said they eliminated 2,000 jobs since the central bank eliminated the cap. Swiss firms worry because a high-value currency prevents domestic industry from becoming more competitive with the euro, and companies rely on lucrative exchange rates to remain profitable.

A low-value franc would not only benefit manufacturers but would also stabilize prices, allow flexible hours for workers and give firms greater breathing room to venture into new markets. Tobias Gerfin, CEO of Kuhn Rikon in Switzerland, stated he intends to not only raise European prices but also increase working hours from 40 hours a week to 42 a week to compensate for a stronger franc. On that note, Gerfin is not as frantic, stating, “The situation is not so bad that I can’t sleep at night,” according to the Economic Times. In fact, many Swiss firms have learned to adjust before the central bank introduced the cap. For instance, Swiss companies manage by focusing on the domestic market instead of competing with foreign markets around Europe.

With strong consumer demand and decreased import prices, Swiss companies can thrive domestically instead of moving operations to more cost-productive locations. However, Nick Hayek, head of the analyst firm Swatch, is one analyst who predicted major economic fallout from an uncapped franc, and he predicted a stronger currency would force companies to move operations out of the country. This has yet to happen, and he later conceded that the Swiss economy is in top shape going forward. Swiss exports increased in March, mostly attributed to higher demand from the United States, Asia and the Middle East. Although some experts predict economic contraction in the first quarter, the Swiss economy expects to grow 0.7 percent in 2015, contrasting with a previous prediction of 0.5-percent contraction from Swiss-based institute KOF.

Further, ratings firm Standard & Poor stated that a rise in the franc would only slow down the Swiss economy and not cripple the country’s overall performance, and the agency expects the Swiss economy to grow 1.7 percent in 2016. S&P believes the stronger currency will hurt exporters, but Switzerland will get a boost from such factors as low oil prices and rising demand from the nation’s trading partners. S&P also expects the SNB to play an active role in the foreign exchange to manage the franc and adjust deposit interest rates when necessary.