Politics

Swiss industry leans on central bank to grant relief from strong franc

3 Mins read

ZURICH – Swiss industry is urging the country’s central bank to broaden its focus from fighting inflation to help them deal with the strong Swiss franc, which is eating into profits as the global economy cools and demand drops.

Over the past year, the safe-haven currency has appreciated significantly against the dollar and the euro, helping curb imported price pressures, but creating a headache for exporters already facing slacker business from Germany and China.

The pleas from industry come as the Swiss National Bank prepares to take its next interest rate decision on March 21 – having long met its core mandate of bringing inflation to within a 0-2% range.

“Once this legal mandate is fulfilled, the SNB also has a mandate to take the economic situation into consideration, and this naturally includes softening the impact of currency shocks for industry,” said Stefan Brupbacher, director at Swissmem, which represents big manufacturers including engineering groups ABB, Siemens and lift-maker Schindler.

“We will never tell the SNB what it should do…yet we expect the SNB to take – within its mandate – the situation of the export industry into consideration.”

The SNB’s next rate decision is finely balanced. Meanwhile the mood within Swiss industry is fragile after the franc appreciated sharply in late 2023.

Martin Hirzel, a board member at Swiss farm machinery maker Bucher, said the franc’s strength came at the “worst possible moment” as firms battled to win new orders after a weak 2023.

“And in this moment we have this appreciation of 5 to 7% against the euro which makes Swiss products more expensive, or companies see their margins disappear,” said Hirzel, who is also president at Swissmem.

Foreign orders fell 9.1% last year, the organisation said, while a Swiss index of purchasing managers in manufacturing has been in contraction territory for a year.

MANUFACTURERS FRET

The franc’s strength is a major worry, according to a recent survey by Swissmechanic, which represents more than 1,300 smaller manufacturers. Confidence in the sector is at its lowest level since the COVID-19 pandemic, the study showed.

Swissmechanic president Nicola Tettamanti said Switzerland had both very good products and a very strong currency.

“A major problem for us is when the euro or dollar drops very quickly against the franc,” said Tettamanti, whose owns and manages Tecnopinz, a maker of precision components for machine tools.

The company, near Lugano in southern Switzerland, is already feeling the slowdown.

“We have probably lost orders that we would have won if the euro was stronger,” he told Reuters.

Companies struggle to pass on higher prices because of soft demand. But if prices stay the same, profits suffer, curbing their ability to invest.

Manufacturing is a pillar of Switzerland’s export-oriented economy, contributing around 22% to its GDP. Almost three-quarters of Swiss-made products are sold abroad.

Although the franc has retreated slightly since the start of the year, it is still nearly 3% higher against the single currency and 6% stronger against the greenback than last March.

Now inflation is under control, the SNB needs to see what it can do to help exporters, said Tettamanti.

He suggested the SNB should focus on managing its currency reserves to prevent an excessive appreciation in the franc by buying euros when necessary.

Traders last week priced in a roughly 40% chance of a 25 basis point SNB cut from the current rate of 1.75%, although the probability has since narrowed to 29%.

The bank, which conducts regular surveys of Swiss businesses, declined to comment on its policy intentions.

Some economists think the time is right for the SNB to change tack with inflation tame.

“The Swiss economy is facing a double problem of weaker demand abroad as well as a strong franc, so cutting interest rates would be a good way to help,” said Karsten Junius, chief economist at J.Safra Sarasin, forecasting a 25-basis-point cut.

Others disagree – for now.

“The SNB will be laser-focused on inflation,” said Gero Jung, chief economist at Swiss private bank Mirabaud.

“It will be watching what happens with industry, but inflation is what matters most.” – Reuters