Strong franc forces a U-turn on export optimism

Even businesses within Switzerland are feeling the pressure from the strong Swiss franc, offering discounts to drive sales. Exporters of Swiss goods are facing especially tough prospects in the European market swissinfo.ch

The majority of Switzerland’s small and medium-sized businesses (SMEs) expect their exports to stagnate in the months to come as a result of the strong Swiss franc, according to a quarterly survey by Credit Suisse and Switzerland Global Enterprise.

In the first edition of the SME Export Indicator since the Swiss National Bank (SNB) un-pegged the Swiss franc from the euro in January, only 29.2% of Swiss companies surveyed expect an increase in exports in the months to come. That’s compared to 48.6% in the last edition of the survey, released just one day before the SNB’s announcement on January 15. And, in just one quarter, the export indicator – where numbers above 50 indicate an expected rise in exports and numbers below 50 an expected decline – plunged from 65.4 points to 46.6.

“The export perspectives…clearly reflect the shock of the strong franc,” Credit Suisse observes. “It’s the weakest [indicator value] since the first survey in the second quarter of 2010.” And the first quarter of 2012 was the last time the indicator stood below 50, indicating exports might decline.

About 66% of the businesses surveyed said the strong franc had had an impact on their exports.

Among the sectors surveyed, the pharmaceutical and chemical industry was most optimistic about the future and expected an increase in sales outside Switzerland. The paper industry also expected in increase in exports, but Credit Suisse said this result should be taken with a grain of salt since the industry had “a mediocre first quarter”.

The five other sectors surveyed by the barometer – metals, precision goods, electrical engineering,  consumer goods and machinery  – all expected a decline in exports, with the services, precision goods and electrical engineering sectors expressing the most pessimism.

What to do?

In order to counteract the strong franc’s effects, 47% of the companies surveyed said they would focus on innovation and 39% said strengthening their marketing campaigns was the answer. Most of the firms said they expected to have to lower their prices in response.

And, 59% said the best way to address the situation is to lower their purchases and operating costs to keep their profit margins from eroding. According to Credit Suisse, 47% of companies surveyed said they were planning to cut costs.

In addition, 28% said they planned to raise prices, 23% said salary cuts were on the table and 20% said they were looking into new markets.

Europe remains the primary market for Swiss SMEs, with 91% expecting to sell their goods on the continent, especially to neighbouring countries. Asia and North America came in as secondary markets, with 52% planning to sell to Asia and 44% with their sights set on North America, especially the United States. 

Retail results

According to provisional results from the Federal Statistical Office on April 17, real turnover in the retail sector adjusted for sales days and holidays fell by 2.7% in February 2015 compared with February 2014 (in nominal terms -4.4%). 

Real, seasonally adjusted turnover in the retail sector fell by 1.2% in February 2015 compared with January 2015 (in nominal terms -2.1%).