Strong franc forces ‘painful adaptation’ of economy

SECO said the chances of Greece finding a successful solution to the problem of financing debt remain highly uncertain Keystone

The strong Swiss franc and uncertainty over the Greek credit crisis have caused the Swiss government to lower its growth forecast for 2015-16. It says the economy remains vulnerable against exchange rate fluctuations.

Growth this year is now expected to occur at a rate of 0.8%, slightly down from the 0.9% forecast in March, the State Secretariat for Economic Affairs (SECO) said in a statement published on Tuesday. For 2016, the expected growth rate has been lowered to 1.6%, down from 1.8% forecast in March.

“The Swiss economy continues to be vulnerable against further fluctuations of the exchange rate,” the government’s experts said, describing the situation this year as a “painful adaptation”.

On January 15, the Swiss National Bank (SNB) stunned markets, politicians and consumers when it scrapped its policy preventing the Swiss franc from appreciating beyond CHF1.20 to the euro. The franc surged – at one point the euro fell to just 0.85 francs. It currently stands at CHF1.048 to the euro.

Consumer prices are slowly falling and there are concerns that the Swiss economy could slide into recession this year unless the franc-euro exchange rate improves. The Greek credit crisis has prompted speculation about a possible euro exit, causing more flight into the safe-haven Swiss franc, which the central bank in Switzerland has moved to discourage.

Despite the worry, government experts said they expect there can be “an adaption of the economy to the new exchange rate environment without falling into a severe recession”.

“However, this implies robust domestic demand and further recovery of the world economy,” they added.

Last week Switzerland’s KOF economic research institute said it expects the Swiss economy to grow by 0.4% in 2015 and by 1.3% in 2016, a slight upward revision from its previous forecasts.

SECO’s forecasts come ahead of Thursday’s regular monetary policy meeting for the Swiss National Bank (SNB).