Swiss economy faces challenges after SNB move

Wednesday, January 21, 2015

Subject

Prospects for the Swiss economy after the SNB move.

Significance

De-linking from the euro has uncorked a pent-up surge in the Swiss franc that will challenge the domestic economy. However, its effects on competitiveness will take time to emerge. The Swiss economy has been relatively robust compared with its neighbours and can absorb immediate impacts with limited damage. What will matter most for Swiss competitiveness and the economy will be the medium-to-long term, after the currency stabilises at around an expected 5-10% gain against the dollar compared with a year ago. If the Swiss franc strengthens more, this will put additional pressure on vulnerable sectors and companies that have already had to grapple with high costs and past bouts of currency appreciation.

Impacts

  • GDP growth will slow modestly in 2015, probably in the 1.0-1.5% range.
  • The unemployment rate could rise further, having edged up recently -- 3.2% in December.
  • Competitiveness effects will encourage cross-border shopping and the trend towards workers commuting from neighbouring countries.
  • High net-worth investors and residents in the 'safe haven' of Switzerland, along with high-end tourism, will not be impacted significantly.
  • An electoral backlash could follow.
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