Strong Swiss franc 'could bring recession'
- 17 August 2011
- From the section Business
Swiss economists are warning that the strong Swiss franc risks pushing the country into recession.
Switzerland's traditionally strong and stable economy is dependent on successful exports. More than 50% of Swiss products are sold abroad.
In the last 18 months the franc has increased 25% against the euro and the dollar, making Swiss products much more expensive abroad.
This week, Swiss manufacturers, among them producers of traditional products such as cheese, will meet with Switzerland's Minister for Economic Affairs, Johann Schneider-Ammann, to ask for government support to cope with the losses they say they are already suffering.
"Our biggest worry is the strong franc," says Christoph Raz, a producer of Emmental cheese.
"The sales are not too good. We have lost about 17% of Emmental exports, which is a lot."
The Raz dairy dates back to 1942, when it was opened by Christoph Raz's grandfather.
Across Switzerland there are more than 600 such dairies, all producing cheese in the traditional way, using only local milk and local ingredients.
"We are very proud of this industry," says Manuela Sonderegger, of the Swiss Cheese Marketing Board.
"It's not a huge industry, our cheese is made in little village dairies, and nearly every village has a dairy."
But Swiss operating costs are high.
And now that the Swiss franc is so strong, paying them out of profits made in euros has become increasingly difficult.
A kilo of Swiss Emmental costs 15 euros (£13; $22) a kilo, while the mass produced French and German imitations cost just nine euros a kilo.
Until now, European consumers have been ready to pay a higher price for the genuine Swiss version, but Manuela Sonderegger does not think they are prepared to go over that 15 euro threshold.
"Swiss cheese is already quite expensive," she explains.
"And with the weak euro, and the dollar also going down, it means we should really raise our prices, but we can't, or we will lose customers.
"The pressure on the cheesemakers is really high. Here in the Emmental, I know of cheesemakers who are thinking of closing down."
Safe haven dangers
Across Switzerland's manufacturing and tourism industries, the story is the same.
From the big pharmaceutical companies to the family-run hotels in the alps, every area of Swiss economic activity is being affected.
As the crisis in the eurozone continues, the Swiss franc is being seen as a safe haven by international investors.
As a consequence, the Swiss currency is rising to undreamt of levels. In the first week of August it reached parity with the euro.
Anything with a price tag in Swiss francs is being priced out of the market, and Swiss industry leaders are voicing extreme concern.
Nick Hayek, chief executive of the Swatch group, recently rounded on those he termed "speculators", and told them to "stop messing with our Swiss franc".
In government circles too, there is worry and frustration. Serge Gaillard, director of employment at Switzerland's State Secretariat for Economic Affairs, predicts big job losses by this autumn if the franc remains so high.
"In a situation with extremely overvalued money, all prices are too high," he explains.
"You can produce with losses for some time, and then you have to restructure your production.
"You have to lay off the people working, you have to move your production to cheaper countries, and the consequences would be higher unemployment and a long period without growth in Switzerland."
But Mr Gaillard does believe Switzerland can fight back, and he is looking to the Swiss National Bank to mount a robust defence of the Swiss economy, based on one simple strategy, flooding the international markets with francs.
"It's our currency, and it's up to our national bank to stabilise this money and to weaken the franc in order to make Switzerland competitive again," he says.
"If people want to buy francs which are anyway overpriced, then it's not so difficult for our national bank to offer these francs - the production costs are not very high."
In fact, the SNB has already begun pumping francs into the markets, but so far the effects have been fairly modest.
The franc has fallen back to around 1.10 against the euro, but remains a long long way from the 1.30-1.40 level that Swiss business leaders claim is realistic.
Swiss economists now fear a recession may be unavoidable.
"I don't think we'll see the 1.30 level again," says Professor Klaus Neusser of the University of Berne.
"I think for the country as a whole there is really a danger of going into recession.
"The export industry is suffering quite a bit, and the franc is just now strong, but in fact it has been strong for some time, so there is a great danger."
So where does that leave makers of traditional Swiss products, such as Christoph Raz?
He is pinning his hopes on a new marketing campaign, to remind Europe just how unique his Emmental cheese is.
"It's the best cheese in the world," he says.
"It's produced really naturally, without artificial additives. It's produced by respecting nature and the environment. Quality always has its place, and so we will survive."
But, when asked if all his colleagues in the cheesemaking industry will survive, Mr Raz is less optimistic.
"No," he says. "Not all."