Weak dollar eases inflationary worries

The US dollar is on a downward flight path imagepoint

The dollar's recent fall to an all time low of under SFr1.10 has balanced out the effect of the strong euro on the Swiss economy and for consumers.

A weak dollar, sparked by the poor health of the United States economy, should keep the price of goods in the high street down despite rising oil prices and expensive European imports, economists believe.

This positive impact of the dollar’s fall from grace is widely predicted to outweigh negative consequences for Switzerland’s export industry and parts of the manufacturing sector that compete directly with the US on the international markets.

In fact, Switzerland appears to have the best of both worlds. The over-valued European currency boosts Swiss exports to its most important customers and the weak dollar mitigates the rising cost of raw materials that are traded in the greenback.

For motorists, the weak dollar should signal a slow down in spiralling prices at the petrol pumps.

Credit Suisse bank chief economist Alois Bischofberger told swissinfo that the Swiss National Bank (SNB) is unlikely to dampen Christmas cheer with an interest rate rise next month.

“Thanks to the weak dollar consumer inflation might be a little lower than it would otherwise have been with rapidly rising oil prices,” he said. “This easing of inflationary pressure could have an impact on the Bank’s decision.”

New York shopping

A global economic slowdown, led by a crash in the US property market, and a slowdown in the Swiss construction sector could also influence the SNB, Bischofberger added. But he warned of a possible rate rise next spring if market volatility settles.

Economist Professor Franz Jaeger of St Gallen University told swissinfo that the strong euro has also had a beneficial effect on the Swiss tourist industry.

“For our most important customers in the Eurozone, the Germans, Italians and French, it is cheaper to take a holiday in Switzerland than most other places in Europe,” he said.

On the other side of the coin, the Swiss have been flocking to American cities such as New York to make the most of the favourable exchange rates during the Christmas shopping season.

But it is not all good news. As a result of increasing tourist numbers, American hotels have put up room prices by around five per cent on average.

Correction expected

Those shoppers who stay at home cannot necessarily expect cheaper goods because US imports are less expensive.

Many retailers buy products such as computers and CDs through European middlemen and do not see much of a price reduction as a result.

With currency markets in a state of volatility, some experts can also see a correction in both the exchange rates of the dollar and the euro next year. The Swiss franc appears to be losing its reputation as a safe haven currency in favour of the euro.

“What we are seeing is a weakening of the dollar, not a strengthening of the franc,” said Jaeger. “The franc has appreciated slightly, but the dollar is weak against most currencies.”

swissinfo, Matthew Allen

In brief

Swiss exports soared by 12.4% to SFr146 billion ($125 billion) in the first nine months of this year compared to 2006. Imports rose by 11.9% to SFr133.5 billion on the back of a healthy economy and weak Swiss franc – a trade surplus of more than SFr10 billion (20% higher than last year).

The main export destinations were emerging countries (+23.4%) and the EU (+13.1%), compared with (+4.2%) for industrial countries such as the US, Canada and Japan.

The State Secretariat for Economic Affairs (Seco) predicts Swiss GDP to grow 2.3% this year and 1.9% in 2008. The Swiss National Bank predicts growth of 2.5% (2007); 2% (2008), KOF Swiss Economic Institute: 2.8% (2007); 1.9% (2008); 2.0% (2009) and BAK Basel Economics: 2.7% (2007); 2.3% (2008).

Key facts

Last week the dollar slid to an all-time low of 1.096 against the Swiss franc.
In 1972 one dollar cost four Swiss francs. However, not long after that, the dollar slid to SFr1.50 and exchange rates have been flexible since 1973.