Swiss SMEs Face Up to the Swiss Franc Shock
The abolition of the euro minimum exchange rate by the SNB has also left its mark on the SME Export Indicator. The mood of the 200 companies surveyed has never been as bad as in the first quarter of 2015.
Interview with Alberto Silini, Head of Consultancy, Switzerland Global Enterprise, and Lukas Gehrig, Economic Research, Credit Suisse
Alberto Silini: For five years now, we have been surveying over 200 SMEs on their export prospects on a quarterly basis – in this last quarter, we have recorded the worst mood so far. The abolition of the euro minimum exchange rate against the Swiss franc has thus clearly caused an earthquake in the SME export economy.
However, our survey also shows that SMEs are not sticking their heads in the sand in despair. A majority of SMEs still believe in rising exports or stagnation, not in a decrease in their exports. Virtually no one wants to withdraw from the demanding export business. Twenty percent even want to improve their margins by seeking new, more lucrative markets. That is exactly the right path. SMEs need to diversify their international strategy to balance currency risks in the long term and generate growth at the same time.
Stable Economic Environment
Lukas Gehrig: There are definitely growth opportunities. Exchange rate developments notwithstanding, the global economy – and therefore the potential demand for Swiss export goods – appears stable at the beginning of the second quarter. The US remains an important growth market. New, positive impulses are currently coming from the euro zone. The euro zone is benefiting from favorable conditions for borrowing and the continued low oil prices are functioning as a free stimulus package. In addition, bond purchases by the ECB tend to weaken the euro, which benefits the European export economy. Germany and Spain in particular have recently shown strong preliminary indicators. The economic expansion in the euro zone is likely to somewhat soften the negative impact of the strong Swiss franc.
Impact of the Strong Swiss Franc on Exports to the Euro Zone
Lukas Gehrig: To have a better picture of the impact of the sudden appreciation of the Swiss franc against the euro, we have analyzed how strongly exports in the euro zone react to exchange rate fluctuations and economic growth.
Our analysis shows that an appreciation of the Swiss franc against the euro by 1 percent leads on average to a decline in exports to the euro zone of 0.3 to 0.4 percent. For an appreciation of 15 percent, exports would go down by around 5 percent. The paper, printing, and plastic sectors are especially exposed. Nonetheless, exporters still benefit from growth in the euro zone. Growth of 1 percent in the euro zone increases Swiss exports by around 3 percent on average. Metal and machinery industry exports are particularly dependent on the euro zone economy. These sectors are likely to benefit first from the growth in the euro zone.
Measures Related to the Strength of the Swiss Franc
Alberto Silini: The improved outlook in Europe is extremely important for all SMEs, according to our survey. Their margins are suffering almost exclusively due to the strength of the Swiss franc in the euro zone. In order to improve said margins, a large number of the companies are relying on optimizing their supply chain and reducing production costs. Our tips: Analyze thoroughly and be creative, renegotiate with long-term suppliers and partners, or create purchasing syndicates. By way of example: One of our SME clients is now importing raw materials directly.
In general, SMEs are working hard on being competitive so that they can benefit from the overall favorable economic situation despite the difficulties caused by the strong franc. This quarter, most of those in our survey indicate wanting to drive product innovation and marketing forward. Our experience is clear. If exporters offer innovative added value, positively distinguish themselves from the competition, and capitalize on their Swissness, higher prices are justified. For instance, one of our clients increased its guarantee period, thus reinforcing its commitment to service and quality without incurring any major costs.