Switzerland’s strong currency is a boon for traveling Swiss bargain hunters or those surfing online shops abroad while its healthy economic indicators would be the envy of debt-plagued major economies.
Although the local business community is well used to their currency’s lure in times of crisis, its nerve has been tested lately as the franc has risen to new highs against the euro, pound and dollar at the end of this year.
“It’s not a nightmare but it’s a risk factor for the dynamics of the Swiss economy,” said Aymo Brunetti, head of economic policy at the Ministry of Economic Affairs.
The British pound has lost 40 percent of its value against the Swiss franc in the space of three years, while the euro touched a new low of 1.25 Swiss francs over the Christmas period after plunging nearly 15 percent this year.
Meanwhile the dollar has fallen by about 20 percent in a helter skelter ride since the financial crisis hit in 2008. As of late this month, the US currency was changing hands for less than SF1, -compared to a peak of 1.80 in 2001.
The Swiss government’s advisory panel of leading economists this month heralded a slowdown in ever more costly exports over the coming year, helping to pare down Switzerland’s economic growth from 2.7 percent this year to 1.5 percent next year.
Even cattle farmers are suffering from the strong franc. Now deprived of subsidies, just 313 head of cattle were exported this year compared with 5,779 last year, according to the Swiss farmers union (USP).
The SF14.4 billion tourism industry is also casting an anxious eye on foreign exchange markets as it heads into its hallmark winter holiday season.
After wooing more Indian and Chinese tourists to Alpine pastures over the summer, tourism operators in Switzerland are pinning their hopes on heavy snowfall to temper the discouraging impact of the overheating currency on skiers from neighboring countries.
“From the snow point of view, we’re off to an excellent start to the season, and that has a psychological impact,” said Veronique Kanel, a spokeswoman for the country’s tourist authority Swiss Tourism.
However, “in winter we’re much more dependent on European tourists,” she said, pointing to a “euro effect.”
Forecasting group BAK Basel predicted that foreign demand for overnight stays in Switzerland would drop by 2.2 percent this winter and by 5 percent on average for tourists from the eurozone. Cable car operators have already suffered a 5.2 percent drop in revenue this year.
Kanel said the number of British tourists heading for Swiss slopes fell by 18 percent last year as the crisis dug deep and those who did come spent less.
With interest rates wedged at record lows and little leeway, the central bank has been watching for signs of deflation for more than a year.
“The fact that the current Swiss franc strength is proving particularly burdensome for the Swiss economy is due partly to the speed of the appreciation but also due to the uncertain economic climate,” Swiss National Bank Governor Jean-Pierre Danthine said.
Brunetti suggested that some currency strength was normal with strong economic indicators and would benefit Swiss “well-being” in the longer term.
However, consumer associations complain there has been little sign that local shoppers in the import-dependent economy can benefit from the flipside of the coin, lower prices.
Food and cars were among the goods where importers clung on to high margins, according to Michel Juvet of private bank Bordier.
“It’s a pity because that’s how you liven up an economy, by allowing consumers to supply themselves at less cost,” Juvet said on Swiss radio RSR.
“Consumers must be encouraged to use the Internet to push for price liberalization,” he added.
A return to calmer times is widely forecast in 2012, but the weekly Weltwoche newspaper reported that the central bank chief had warned ministers that a worst case scenario in Europe’s sovereign debt crisis could bring the euro down to SF0.5.
One factory owner described that as “apocalyptic.”
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