Strong franc hurts Swiss sales in the US

Image Caption: Michael Haene imports with his brother Cliff Swiss products for their shop in Washington (swissinfo)by Marie-Christine Bonzom in Washington, swissinfo.ch

The situation has become so difficult for some distributors that they have reduced their “Made in Switzerland” selection rather than have expensive products gathering dust on shelves.

“Small and medium-sized businesses which import 100 per cent Swiss-made articles with high production costs such as cheese or chocolate have suffered the most from the exchange rate,” said François Schmidt, the commercial attaché at the Swiss embassy in Washington.
He added that there were no official figures so far, but business owners and managers were repeating the same thing everywhere. “Even bigger companies are starting to feel the effects of the strong franc.”
For Dominik Schieweck, owner of the “Schoggi” chocolate store and website in San Francisco, the weak dollar has made his situation extremely difficult despite an 80 per cent increase in sales over last year.
“The prices of my suppliers have been going up, up, up and I’ve had to react and raise my prices. My business is barely profitable right now,” he told swissinfo.ch.
“We opened the shop before Christmas 2007, right before the recession hit. My whole business plan was built on the knowledge that I wouldn’t make money for the first four years, but I was not prepared for it being that bad.”

Bruce, manager of the Silicon Valley online store Swisschocolateoutlet.com, has decided to close the website. “Our sales are down since last year and the business is not very cost-effective,” he said.
“We’re redirecting clients to our other site, and what we’ve seen is that some would still buy Swiss chocolate as they place an order for Chinese fortune cookies.”
On the east coast in Washington, Cliff Haene, co-owner of the German Gourmet store and son of a Bernese immigrant, is not feeling the pinch as much as some of his colleagues.
“We’re located in the region of the US the least affected by the economic crisis and people here have more disposable income than elsewhere,” he told swissinfo.ch. “We also have [a big] enough mix of products from other countries.”
Haene expects to suffer from the strong franc in the autumn and during the end-of-year holidays, which start with Thanksgiving in late November. The impact is already being felt though.
“People compared [our prices] with domestic yogurt, so we had to remove Swiss yogurt from our shelves – now we only offer it by special order,” he explained.

Food items are not the only products taking a pounding. An Illinois-based website that sells as part of its range frying pans and saucepans made in canton Valais is having trouble shifting its merchandise.
“Our Swiss utensils are very high-end. They’ve always been expensive, but right now they’ve become very expensive and sell very slowly,” said the online store’s manager, who wished to remain anonymous.
Chantal Aeschbach-Powell, president of the US subsidiary of the Naef toy company in Virginia, says sales of the firm’s wooden objects to museum and decoration stores have been flat since last year.
“Because of the exchange rate we had to revise our pricing up about a year ago and we re-evaluate it every three to four months,” she told swissinfo.ch.
The company is considering slashing some models from its 75-product range and wants to target a wider market. Naef recently participated for the first time in the New York International Gift Fair.

Miami-based Ira Krieger, founder of the Swiss luxury watch brand of the same name, warns that companies working the higher end of the market should be cautious.
“We have to be very careful when we raise our prices,” he said. “To keep the Swiss made label, we can’t switch production to China or elsewhere, so our only room for manoeuvre is to revise prices. But once you raise prices, you can’t lower them or you’ll be out of whack with the market when the dollar is up again.”
Maintaining margins is also a dilemma for producers and resellers, Krieger concluded.
“As we raise prices, we lose customers, others change their behaviour and reduce purchases,” he told swissinfo.ch. “A client who might have bought three watches over three to four years might now only buy one.”

Marie-Christine Bonzom in Washington, swissinfo.ch
(Adapted from French by Scott Capper)

View the original article here

Press unswayed by “placebo” franc cuts

Image Caption: Newspapers said measures to adjust the Libor rate were symbolic (Reuters)by Jessica Dacey, swissinfo.ch

The Swiss National Bank (SNB) on Wednesday reduced official interest rates by 50 basis points to a target range of 0-0.25 per cent. It is the first time the SNB has lowered the interbank Libor rate since March 2009.

The bank said the franc was “massively overvalued at present” and it was aiming for the three-month Libor at “as close to zero as possible”.
The steps will have no more than a “placebo effect”, commented the Tages-Anzeiger.
“The measures themselves are mainly rhetoric and in their specifics so technical that only financial experts will really be able to understand them,” noted the newspaper.
“The prescription could have been made by a doctor, sitting across from a patient with a chronic illness, and not wanting to give the impression of doing nothing to help. There isn’t much he can do, so he prescribes a placebo. So everyone thinks something is being done. But the chronic suffering continues.”
For weeks the central bank had been accused of “living in the past”, and it took the meteoric rise of the Swiss franc before the Swiss National Bank decided to take action, said La Liberté.
And yet, the decision was symbolic, it said, as the Libor is anyway approaching zero per cent. “The interbank market of borrowing in Swiss francs has hardly reacted,” UBS analyst Thomas Flury told Thursday’s edition of the newspaper.
In its editorial, Le Temps agreed. “The markets reacted in the first hours but it very quickly became clear that the measures announced were symbolic, soon erased by the scale of the problems causing the rise of the franc.”
For the paper, the Swiss franc, like the Canadian and Australian dollars, are acting as refuges in a world that has “lost confidence”. 
“The franc is an anchor like the Deutsche mark before it, but it is so small that the waves from the markets risk sweeping everything else up in their path. Obviously the SNB has not exhausted all its resources, but from the tone of its communiqué, one can gauge that we aren’t going to be saved,” said Le Temps.
“The SNB has simply reaffirmed that it is ready to act and it is involved in providing oxygen for a national economy that risks losing air in the coming months.”

Some quarters were relieved by the measures however. Industry, tourism, politicians and the government welcomed the intervention.
“Finally the National Bank is taking action, say representatives of the export industry and tourism. Yet fears of a new appreciation of the franc are great,” wrote the Tages-Anzeiger newspaper.
The SNB must remain firm, businesses say. “Keep printing money until the franc is considerably weaker," one company boss told the paper. A tourism entrepreneur from Graubünden urged the National Bank to set a target course and stick to it.
The Blick tabloid called it a “smart move”. “Much ado about nothing? No!”, said its editorial. 
“The fact that the National Bank is no longer watching the franc get stronger has made speculators stay away from the franc. It is cheap to criticise the bank because nobody can know how deep the euro and the dollar would have dropped,” it said.
But it’s the rate at which the franc has been rising that is so worrying and the fact that there is no end in sight to the debt crises in Europe and the United States and related currency risks, noted the Neue Zürcher Zeitung.
The SNB now faces a dilemma, warned the newspaper.
“Until a real, structural solution to these crises is found, investors have every reason to flee government bonds and to put their money in the franc market instead. As long as the franc keeps growing in attractiveness as a place of stability in a system of flexible exchange rates it is probable that it will continue to strengthen, bringing the investors profits,” it predicted.
“A fundamental change would only come about if the Swiss economy collapsed, making franc investments no longer stable, or if the bankers succeeded in stopping expectations of a further rise in the franc’s value.”

Britain's Financial Times noted that the “S3 currencies” – the Swiss franc and the Canadian and Australian dollars –  have gained in prominence in terms of daily turnover in global currency markets and in the composition of central banks’ foreign exchange reserves.
Writing in the British newspaper, UBS foreign exchange strategist Mansoor Mohi-uddin said the S3 currencies were now “ruling the roost”. They are increasingly traded in foreign exchange markets, as they “represent an alternative group of ‘shadow currencies’ for investors wishing to take directional views on the world’s three leading economies: America China and Germany”.
“In short, the Swiss franc and Canadian and Australian dollars allow investors to hold a core European currency without the eurozone’s debt burdens, a North American currency without America’s fiscal baggage … and a shadow currency for China’s economy without capital controls or currency pegs.”
But he warned that the situation could “cut both ways”, with a risk of the eurozone debt crisis engulfing other countries and dragging down the Swiss franc too.

Jessica Dacey, swissinfo.ch
(With input from Urs Geiser)

The Swiss franc is a so-called “safe haven” currency, which means that investors and speculators buy it when other currencies, including the euro and the dollar, are under pressure.
The franc has gained 25 per cent in value against the euro and the dollar over the past four years.
The Swiss National Bank has emphasised that it does not pursue an exchange rate target, but consistently bases its monetary policy on its legal mandate.
This mandate stipulates that “the SNB is required to ensure price stability, while taking due account of economic developments”.
Starting in March 2009 the SNB intervened in currency markets. But after pumping in 15 per cent of GDP in May 2010 to little effect as the Swiss franc surged during the first round of the Greek debt crisis, it dropped them in June 2010. 
These forays led it to a loss of SFr21 billion last year, its biggest ever, and its chairman, Philipp Hildebrand, has faced calls to resign.

The SNB reported a consolidated loss of SFr10.8 billion ($13.5 billion) for the first half of 2011.
Losses on the bank’s foreign currency positions amounted to some SFr9.9 billion.
This was mainly due to exchange rate-related valuation losses of around SFr11.7 billion.
A year ago at this time, the bank recorded a much smaller loss of SFr2.78 billion.
The SNB result depends largely on developments in the gold, foreign exchange and capital markets. Because fluctuations are common, it is not possible to make accurate predictions for the rest of the year.

View the original article here

Strong franc gnaws deeper into Swiss economy

Image Caption: The franc's clout is hitting domestic industries (Keystone)by Matthew Allen, swissinfo.ch

The value of the dollar sank below the franc some time ago, and there are no signs of the trend reversing with the Swiss economy performing so robustly compared to debt-laden European countries and the United States.

“It seems prophetic, and almost tragic, to say so now, but the Swiss economy has been the victim of its own success in surviving the financial crisis over the last couple of years,” Janwillen Ackett, chief economist at Julius Bär bank, told swissinfo.ch.
“Something dramatic has taken place since the start of the year and our outlook is now a more sober one. We will really feel the pain of the over-valued franc in the coming months.”
Acket has downgraded his predictions for Swiss gross domestic product (GDP) growth for this year to 1.4 per cent, compared to a 2.2 per cent forecast in January and 2.6 per cent made last year.

Joseph Jiminez, chief executive of Novartis warned on Tuesday that the drug maker would have to “reduce the total cost we have in Swiss francs” while referring to the damage caused by the strong currency.
Also on Tuesday cabinet ministers interrupted their holidays to discuss via teleconference the strong franc. However, no measures were taken.
This week, the franc recorded more gains against the euro – with one unit of the European currency costing SFr1.14 compared with SFr1.50 at the end of 2009. Many companies would go to the wall if the franc reaches parity with the euro, Peter Widmer, president of the Swiss export association, told the Blick newspaper in May.
“If that really happens then thousands of companies would face bankruptcy,” he said.
And it is not just engineering companies that face problems. The textiles industry has appealed to the government to provide bridging loans to stave off a looming crisis in that sector.
There are also reports of traditional, small cheese makers failing as exports melted by 3.5 per cent in the first quarter of this year. Imports of foreign cheeses rose by 7.4 per cent in the same period, according to the cheese marketing board.
Other milk products also face a currency squeeze. Milk products producer Emmi reported that a SFr100 million hole has been blown through its turnover in the last three years as a result of the strong franc.

Private bankers, thought to be the main beneficiaries of the strong franc as investors flock to Switzerland, insist that they are not as well off as believed because new assets are denominated in euros, while their cost base remains in francs.
The tourism sector has also suffered from the effects of the strong franc. The NZZ am Sonntag newspaper reported on Sunday that a thousand Swiss hotels were threatened with extinction as fewer tourists visited high price Switzerland.
The head of the Swiss tourist board, Jürg Schmid, appealed to the patriotism of Swiss holidaymakers in a SonntagsBlick article on Sunday, urging them to stay at home and spend their money in the domestic market.
Hansueli Loosli, chief executive of supermarket chain Coop, has also being banging the patriotic drum, accusing Swiss consumers that drive over the borders to buy cheaper euro products of costing homegrown retailers some SFr2 billion a year in lost sales.
On the other side of the coin, the Swiss price watchdog has leveled an accusing finger at retailers, saying they are doing too little to pass on the reduced cost of imports to consumers.
Swiss consumers typically pay some 20 to 30 per cent more than European counterparts for the same goods, but official statistics showed that the high street cost of goods and services imported from the euro-zone have hardly dropped despite being cheaper to buy with the Swiss franc.

Matthew Allen, swissinfo.ch

The Swiss franc is a so-called “safe haven” currency, which means that investors and speculators buy it when other currencies, including the euro and the dollar, are under pressure.
The franc has gained 25 per cent in value against the euro and the dollar over the past four years.
The Swiss National Bank has emphasised that it does not pursue an exchange rate target, but consistently bases its monetary policy on its legal mandate.
This mandate stipulates that “the SNB is required to ensure price stability, while taking due account of economic developments”.
Starting in March 2009 the SNB intervened in currency markets. But after pumping in 15 per cent of GDP in May 2010 to little effect as the Swiss franc surged during the first round of the Greek debt crisis, it dropped them in June 2010.
These forays led it to a loss of SFr21 billion last year, its biggest ever, and its chairman, Philipp Hildebrand, has faced calls to resign.

View the original article here

“Sober” Swiss franc strategy praised

Image Caption: Switzerland has to consider its franc policy carefully. (Keystone)by Renat Kuenzi, swissinfo.ch

Resorting to a proactive strategy would be counter-productive, he tells swissinfo.ch.

The Swiss franc has gained 25 per cent in value against the euro and the dollar over the past four years. The cabinet is currently considering measures to offset the negative impact of the continuing strong Swiss franc on the country’s industry.

Thomas Straubhaar: At first sight this seems quite logical. But I would urge caution as this kind of state aid is always a precarious balancing act. Direct assistance can also have side effects. It’s also hard to agree upon which businesses need help and which don’t.
Switzerland has an import industry, which benefits from the strong franc, as well as an export one. Trade associations’ comments that the strong franc is a problem for the whole of the Swiss economy is just not true.
Industry and the hotel sector both benefit, as imported goods such as energy, raw materials or luxury items have become cheaper compared with abroad. Swiss tourism also strongly targets high-spending guests, who are less affected by the exchange rates.
The second benefit of a strong franc for Switzerland is that the country has the lowest capital costs in the world. The interest rate is low and risk premiums are extremely low. A Swiss hotel owner who is modernising his business is able to secure much cheaper capital than his competitors in the rest of Europe.
As capital is so cheap Swiss firms operate in a capital-intensive manner. Productivity is therefore extremely high in Switzerland and industry is more efficient and competitive.

Professor Thomas Straubhaar (HWWI)

T.S.: Not at all. Staying calm is the right strategy. It would be extremely perilous to intervene in the short term in the complex exchange rate mechanisms. The problem would be how to ensure accuracy and longevity, as by the time measures take effect the exchange rates could look completely different.
The tourist sector and exporters, who ask high prices for high-quality services, have to maybe accept lower margins but not necessarily a drop in turnover or demand.

T.S.: Diversification is a smart strategy. In Southeast Asia, eastern Europe and Latin America markets are growing at a tremendous rate and the public’s purchasing power is rising fast.
The countries to watch are not just China and India, but also Malaysia, Indonesia, the Philippines and Vietnam, and in Europe the eastern European countries, and especially Turkey.
The Swiss franc has risen not only against the euro, but also against the dollar and the currencies in all these countries.
Swiss businesses have recently been offering not only individual products, but also services that make up the whole value chain including taxation, finance and insurance.
The most popular example of this is the Olympic Stadium in Beijing. The Chinese implemented the project but the Swiss architects Herzog & de Meuron oversaw the whole process in a very economical way.

T.S.: The situation for central banks is incredibly difficult; that of the SNB is slightly easier than that of the European Central Bank (ECB). There have already been new financial bubbles as witnessed by rising prices on stock markets and for raw materials, property and financial assets. Meanwhile the worst is still not over for many countries’ economies.
Central banks have had to raise interest rates due to these bubbles. If the SNB followed suit the Swiss franc would become more attractive and this would lead to a new re-evaluation pressure on the franc.
Compared with the SNB, the situation for the ECB is much tougher. If you look at Germany it should raise interest rates as their economy is booming and the inflation rate already clearly lies above the two per cent mark and this is continuing.

Fellow eurozone states like Greece, Ireland, Portugal and Spain are on the edge of an economic depression. If interest rates rise that would cause interest charges to explode. The restructuring of national budgets and economic recoveries would be delayed or hindered.
Central banks therefore face a terrible dilemma. The creation of bubbles is obvious, the economies are only again operating at capacity in a few countries, and there are still too many market risks. If interest rates are raised too quickly, it cannot be ruled out that the economy again falters.

T.S.: I don’t really think so. Last winter the SNB tried to influence exchange rate policy. It bought euros in order to weaken the franc. Now it has the problem of sitting on higher euro assets and has to write them down.
Tying the franc to the euro would simply mean the SNB would have to buy euros on a daily basis to keep the Swiss franc artificially devalued. Switzerland would end up feeling like a tiny actor in the middle of the huge eurozone with very little clout.

Renat Kuenzi, swissinfo.ch
(Adapted from German by Simon Bradley)

The Swiss franc is a so-called “safe haven” currency, which means that investors and speculators buy it when other currencies, including the euro and the US dollar, are under pressure.
The increasing value of the Swiss franc is a source of great frustration for exporters because their goods are more expensive to sell outside Switzerland, particularly in the eurozone.
It costs around SFr1.22 to buy a euro at present. A year ago, it would have cost SFr1.48. The increase in the value of the franc over the 12 months is about 17%.
The franc has also gained inexorably in value against US dollar, that has been weighed down by slow economic growth and – above all – an increasing mountain of debt.
The dollar has been below parity against the franc for some time. A single dollar can now be bought for around 85 Swiss cents. 
The Swiss National Bank has emphasised that it does not pursue an exchange rate target, but consistently bases its monetary policy on its legal mandate.
This mandate stipulates that “the SNB is required to ensure price stability, while taking due account of economic developments”.

In the last 20 years Switzerland has become a major exporting country, according to a study by the Swiss bank Credit Suisse published in May 2011.
Exports of goods and services accounted for only one third of gross domestic product in 1990; by last year this had risen to 57%.
The reason for this rapid increase is globalisation.
In comparison with many other countries, the Swiss export industry emerged relatively unscathed from the 2008-2009 international economic crisis, and recovered more quickly.
One reason for this is the fact that the pharmaceuticals industry, which is relatively stable, accounts for almost one third of exports, the report says.

View the original article here