Swiss growth takes a hit, adding to SNB strong franc dilemma

Swiss one franc coins are seen in this illustration picture taken in Zurich

By John Revill

ZURICH (Reuters) – Measly economic growth and tumbling exports data for Switzerland underlined on Thursday the failure of the Swiss National Bank to check the rise of the franc.

Month-on-month GDP growth was just 0.1 percent in the final quarter of last year, with goods exports – which together with services amount to around two-thirds of the economy – shrinking 3.8 percent from the previous quarter.

Much of the decline was put at the door of the strong Swiss franc, which makes Swiss goods more expensive abroad.

The franc strengthened almost 2 percent against the euro in the fourth quarter and is another 0.7 percent stronger so far this year.

Fears sparked by France’s elections and anxiety that Greece’s fiscal woes could threaten the future of the euro have driven increased demand for safe-haven francs.

There is also a new concern – new U.S. President Donald Trump’s aversion to what he sees around the world as anti-American currency manipulation would turn to Switzerland as the Swiss National Bank attempts to weaken the currency.

But not yet. The currency’s advance has come despite the SNB spending an average 2.4 billion francs per week so far in 2017 – nearly two and a half times the average from a year ago.

“We are very concerned about the rise in the franc,” said Hans Hess, head of the mechanical and electrical engineering lobby Swissmem, which revealed that nearly half of Swiss industrial companies are considering moving operations abroad.

“It’s not only the machine industry, but tourism, retail which suffer when the franc rises. A stronger franc makes life much harder for Swiss exporters.”

Global watchmaker brand Swatch<UHR.S>, for example, reported a 47 percent slide in annual net profit – partly due to the franc which the company described as “expensive.”

So industries struggling with shriveled margins and lost sales are anxiously watching the franc’s advance toward the high of 1.0623 euros touched after Britons’ June vote to quit the EU.

It was at 1.0640 euros on Thursday.


The SNB – which uses currency intervention and negative interest rates to curb the franc – faces an increasingly difficult situation, economists say.

“The SNB has been juggling with three balls – negative interest rates, the size of its balance sheet and an overly strong Swiss franc, and then someone has thrown them a fourth one – the danger of being called a currency manipulator,” said Thomas Flury, head of currency at UBS Wealth Management.

“There is increasing doubt how long the SNB can maintain the current constellation,” said Flury, who thinks the franc could rise to 1.05 or even 1.03 within weeks.

Switzerland already meets two U.S. Treasury criteria for “unfair currency practices”: having a material current account surplus and having engaged in “persistent one-sided intervention in the foreign exchange markets”.

Switzerland could have a U.S. trade surplus above $20 billion this year on current trends, Swiss private bank Mirabaud calculates.

The SNB declined to comment, but its dilemma is plain to see.

“To prevent the rise of the currency, the SNB would have to intervene to a far greater extent than the level they are at the moment,” Kubli said. “But the SNB probably doesn’t want to intervene in an unlimited way because of concerns about the size of their balance sheet.”

Foreign currency interventions have amassed SNB currency reserves of nearly 700 billion francs, larger than Swiss GDP.

(Additional reporting by Angelika Gruber Editing by Jeremy Gaunt.)