Strong franc weighs on Swiss economy

Swiss economic growth unexpectedly stalled in the third quarter, with momentum held back by weak performance in the energy, construction and financial sector.

Output was unchanged in the three months through September, after increasing of 0.2 per cent in the prior period, the State Secretariat for Economic Affairs in Bern said yesterday.

Economists in a Bloomberg survey had forecast a growth rate of 0.2 per cent in the third quarter. The firstquarter growth rate was revised down to minus 0.3 per cent from minus 0.2 per cent.

“We’re currently in a trough, you see that in the trade figures: there’s still some digesting of the franc shock that needs to be done,” said Cornelia Luchsinger, an economist at Zuercher Kantonalbank. “But for the next year we clearly see a recovery.”

The economy has suffered this year due to the franc, which Swiss National Bank officials have termed “significantly overvalued,” even with record-low interest rates and a pledge to purchase foreign currency.

Switzerland’s rate setters could find themselves easing policy further to prevent a surge in the franc if their euro-area counterparts boost stimulus on December 3, thereby weakening the 19-country region’s currency.

The franc, which traded at 1.08667 per euro at 8:21 am in Zurich yesterday, has appreciated roughly 11 per cent against the common currency since mid January, when the SNB abolished its minimum exchange rate.

As a result, exports have weakened, and the manufacturing, tourism and retail sectors experienced a drop in demand. Still, cheaper imports mean Swiss shoppers have seen their purchasing power rise.

“Fears that the economy and in particular industry would collapse after the franc’s appreciation haven’t proved true — fewer jobs were cut than expected,” SNB President Thomas Jordan told Handelszeitung last week. “But the process of adjustment isn’t over yet. In the course of the next year unemployment should rise a bit.”