What's the Effect of the Strong Swiss Franc?
Articles & stories

What's the Effect of the Strong Swiss Franc?

Although it is now more than a year since the removal of the EUR/CHF exchange rate floor, export-oriented industrial sectors in particular such as the mechanical engineering, electronics, and metals industry (MEM) and hotels and catering are likely to suffer this year from the strength of the Swiss franc.

2015 will go down in economic history as the year of the Swiss franc shock. The removal of the EUR/CHF exchange rate floor by the Swiss National Bank in January 2015 put the Swiss export sectors under massive pressure. But thanks to a persistently robust domestic economy, Switzerland narrowly avoided recession. As a consequence of the exchange rate shock, however, producer and import prices in the industrial sector fell more sharply than they had for decades. In addition, prices in the hotel and catering and retail/wholesale sectors came under significant pressure. As a result, sales and margins in 2015 were down in many sectors, in some cases significantly so. Sales fell particularly sharply in the mechanical engineering, electronics, and metals industry (MEM). These sectors derive a significant portion of their sales from exports to the eurozone, and were thus hit particularly hard by the strong franc.

After-Effects of Swiss Franc Shock Expected for 2016

Even though it is more than a year since the EUR/CHF exchange rate floor was removed, we expect the consequences to persist in 2016. Even a EUR/CHF exchange rate of around 1.10 represents a challenge for many companies from the export industry, for the Alpine tourism industry that is heavily dependent on European guests, and for the retail trade. Many companies in these sectors will have to boost their efficiency in order to generate the same margins as before the removal of the EUR/CHF exchange rate floor. It is also likely that investment decisions in the future will more often disadvantage Switzerland as a production location and that jobs will be increasingly outsourced. Despite these after-effects of the strong Swiss franc, we expect the Swiss economy to grow in 2016 – albeit still well below its potential, but still slightly more than in 2015. This is because of renewed growth in the domestic economy and slightly improved prospects for the export sector.

Export Industry to Bottom Out in 2016, but Still Challenged

The global economy is expected neither to improve nor deteriorate markedly in 2016. This means that the economies of some of the major emerging-market countries will remain on the weak side. We expect the gradual recovery of the eurozone, which is key for the Swiss export industry, to continue, and it is anticipated that the US economy will remain relatively robust. Without a significant devaluation of the Swiss franc, no marked, broad-based recovery in export growth can be expected. Provided that the franc, at the very least, does not appreciate further, the export industry could nonetheless bottom out during the second half of 2016. This particularly applies to cyclical sectors and those affected early and severely by the franc shock, such as MEM or the chemical industry. However, in the coming months, the sometimes painful process of adapting to the new exchange rate situation is likely to continue in these sectors. In the first half of 2016, the manufacturing industry is likely to see further job reductions, outsourcing abroad, and bankruptcies.

Employment Forecasts by Sector Groups

Full-time equivalents, year-on-year change in percent

Sector 2014 2015* 2016*
Manufacturing sector 0.3% -1.0% -1.2%
Construction 0.8% -0.6% -0.5%
Wholesale/retail trade 0.0% 0.0% 0.0%
Hotels/catering 0.5% -1.4% -2.9%
Transport and communication 0.6% 1.1% 0.2%
Banks, insurance, real estate, IT, other corporate services 1.2% 1.0% 0.4%
Public administration, healthcare and social services 1.6% 2.6% 1.7%
Total employment 0.8% 0.7% 0.1%

Source: Swiss Federal Statistical Office;

*2015 estimated and 2016 forecast by Credit Suisse

Switzerland as a Vacation Destination Still Too Costly in 2016 for Many (European) Guests

The strong Swiss franc also continues to affect hotels and catering. This is likely to be felt in the winter season 2015/2016 in particular, as the industry was left largely unscathed by foreign guests staying away in the winter of 2014/2015 due to early bookings. We thus expect that this will lead to a further decline in employment in the sector in 2016. But the downward momentum in the hotels and catering industry should start to slow increasingly as the European economy recovers, provided the EUR/CHF exchange rate stabilizes in the region of 1.10.

Domestic Economy Still to Hum in 2016, but Somewhat Quieter Than in Previous Years

The domestic economy is likely to lose a degree of momentum again in 2016, but still see moderate growth. The labor market situation is deteriorating slightly due to structural adjustments in connection with the strong Swiss franc. This is likely to cause consumer sentiment to remain somewhat subdued and sectors such as retailing at best to stabilize in terms of sales, compared to 2015. Interest rates nevertheless remain low and immigration is likely to remain robust, thereby supporting both consumer demand and the need for housing. This will benefit sectors such as transportation and telecommunications. The construction industry is likely to stabilize in 2016 after a relatively weak 2015, which will benefit architectural firms and other construction-related sectors such as the wood, metal, and plastics industries. Corporate service providers such as lawyers and consultants will continue to benefit from the consolidation of international private banking, among other things, and IT service providers from the increasing digitalization of business and society. The education, healthcare, and social services sectors are likely to see further robust growth this year, although these sectors are under increased cost pressure owing to tight public finances in many places.

Video: Swiss Industry Research (DE) 

By accessing the videos and/or podcasts in this page, you hereby consent to Credit Suisse disclosing your full IP address to YouTube and/or SoundCloud for the purpose of enabling you to view or listen to the content hosted in those platforms. These third party platforms are not operated or monitored by Credit Suisse, and your IP address and any other personal data collected, processed or stored by these third party platforms will be subject to their own privacy policies, and Credit Suisse will not be responsible for their treatment of personal data.

Healthcare-Related Sectors and IT Offer the Best Medium-Term Prospects

Swiss sectors are affected not only by short-term economic fluctuations, but also by structural factors and trends that have a medium- and long-term impact. We compile a yearly medium-term opportunity-risk profile of the main Swiss sectors in order to focus on these aspects. One of the leading multi-sector trends included in this opportunity-risk profile is demographic change. Coupled with progress in medical technology, the aging populations in industrialized countries are leading to a steady rise in demand for healthcare services, and pharmaceutical and medical technology products. These sectors therefore rank at the top end of the opportunity-risk profile, but it is the IT sector that has the best medium-term opportunity-risk profile. Demand for IT services is driven by technological progress and the ongoing digitalization of the economy and society. But digitalization does not just produce winners. As in previous years, this is attested to, among other things, by the fact that the printing and publishing industry has the worst opportunity-risk profile also in 2016. The medium-term assessment for many export-oriented industrial sectors that have to battle with the structural impact of the strong Swiss franc is also below average.

Medium-Term Opportunity-Risk Profile of the Most Important Swiss Sectors 2016

Medium-Term Opportunity-Risk Profile of the Most Important Swiss Sectors 2016

Synthetic indicator, overall economy = 0; dots: Share of Swiss gross value added in 2014 in percent

Source: Credit Suisse