Falling dollar casts shadow over recovery

The franc is sandwiched between a strong euro and a weak dollar swissinfo.ch

The dollar has tumbled to its lowest level in seven years against the Swiss franc and has hit record lows against the euro.

Some economists fear the weak dollar could torpedo a nascent recovery by Switzerland’s export-dependent economy.

The dollar has been steadily losing ground against the franc since mid-2001, when it reached a high of SFr1.80.

The latest slide follows comments from Ben Bernanke, a governor at the United States Federal Reserve, that US interest rates would remain low for some time.

“The weak dollar means that the US can prompt economic growth by having a weak home currency. This should particularly help global US companies,” Lorenz Burkhalter, an economic analyst, told swissinfo.

Negative effects

But Rudolf Walser, chief economist at the Swiss Business Federation, economiesuisse, says he is concerned that a weak greenback could harm the Swiss export sector, already suffering from the economic downturn.

“It’s foreseeable that this weakness of the dollar could hit Swiss export companies hard, in particular because the dollar dropped sharply and quickly,” he said.

“Let’s not forget that 30 per cent of Swiss exports are taken by countries in the dollar zone – the US and other countries who have linked their currency to the dollar.”

Walser added that the watch, machine and tourism sectors were also likely to be affected by the news. But he didn’t think that the dollar’s fall would affect the modest upturn predicted for the Swiss economy in 2004.

Tumbling dollar

Swiss National Bank chairman Jean-Pierre Roth warned at the weekend that the weakness of the dollar had become a pan-European problem.

“We cannot influence the dollar exchange rate ourselves,” said Roth.

The euro, however, has held steady against the franc – which is good news for the Swiss economy, according to economiesuisse’s Walser.

“It’s very important for the Swiss economy that the franc maintains its stability against the euro, because at the moment 60 per cent of Swiss exports go to the eurozone,” Walser told swissinfo.

Upbeat assessment

On Tuesday investment bank Goldman Sachs predicted that the Swiss economy should recover strongly this year after two years of stagnation.

Economic researcher Inês Lopes wrote in the bank’s “European Weekly Analyst” that the key issues for Switzerland in 2004 were the strength of the recovery and the likely pace of monetary tightening by the Swiss National Bank.

“Switzerland has suffered more than other economies from the global downturn. Now it is likely to benefit more from the global upturn,” wrote Lopes.

She added that GDP (gross domestic product) growth was likely to pick up from –0.4 per cent to +2.2 per cent over the course of the year.

Eurozone growth

Goldman Sachs said it believed that a small depreciation of the Swiss franc against the euro and, more importantly, stronger growth in the eurozone should boost exports.

Stronger domestic demand would also support growth in 2004, with real interest rates remaining low in the first half of the year.

The investment bank said households would benefit from positive real wage growth and an improvement in the labour market.

It added that the unemployment rate was expected to decline from a high of 4.4 per cent to 3.4 per cent by the end of 2004.

swissinfo with agencies

Dollar

In 2003 the dollar lost 15% of its value compared with other strong currencies, the biggest slide since 1987.

At $1.28, the euro has gained 50% against the dollar over two years.

At SFr1.23, the dollar has attained a seven-year low against the franc.