The “Swiss franc shock” has a far-reaching impact

It is over a year since the Swiss National Bank abandoned the minimum rate against the euro. This has cost over 10,000 jobs to date and has halved economic growth.

A shopping centre across the border in Germany welcomes its Swiss customers with a “grüezi” – shopping tourism is a notable consequence of the strong Swiss franc. Photo: Keystone

After 15 January 2015, the euro rate fell from CHF 1.20 to under CHF 1. It has now stabilised at around CHF 1.10. Source:

It was a difficult moment for Thomas Jordan when he appeared before the media on Thursday, 15 January 2015. The chairman of the Swiss National Bank (SNB) was perceptibly tense because his decision, which had been announced several hours earlier at 10.30 a.m., triggered a tremor on the foreign exchange market. The euro-Swiss franc minimum rate of 1.20 no longer applied.

The SNB’s three-member Governing Board was now relying on negative interest instead of the minimum rate: “To ensure the removal of the minimum rate does not result in undue tightening of the monetary framework conditions, the National Bank is cutting the interest rate significantly,” said Jordan at the time. The introduction of penalty interest of minus 0.75 % on bank balances aimed to deter investors from depositing their money in francs, thus ensuring the value of the franc did not rise too much. This succeeded to an extent. During the major crises of recent months, less money flowed into Switzerland and there was lower appreciation pressure than in previous years, even during situations like the Greek debt crisis in the summer.

Since 15 January 2015, Switzerland has been the only small country with a very open economy that refrains from any linking to larger currency zones – with consequences that will continue to be felt, even if the initial appreciation of the franc against the euro by almost 20 % has since halved. While the Swiss economy has not fallen into recession, the “Swiss franc shock” has had a far-reaching impact on industry, trade and tourism.

Great uncertainty

There is still great uncertainty over the future development of the exchange rate: “The monetary policy system has been out of kilter since the 2008 financial crisis as Switzerland has since taken the rap for any anxiety on the financial markets through its currency,” remarks Martin Neff, chief economist at the Raiffeisen Group. He believes we have been in an extraordinary phase of appreciation since 2008 which bears comparison with the difficult period after 1973. Around 10 % of jobs were lost in Switzerland at that time. This view is also shared by the economist Bruno Müller-Schnyder who has attempted to determine the cost of abandoning the minimum rate in a study. This can be observed in various areas:

The economy: The de-coupling from the euro paralysed the previously buoyant economy. Following a 1.9 % growth rate in 2014, the Swiss economy only grew by a meagre 0.7 % in 2015, according to the latest estimates. By contrast, the economy of the EU countries expanded by 1.8 %. At +1.1 % growth this year, according to the KOF economic research unit at the Federal Institute of Technology (ETH), Switzerland will again lag well behind Germany (+1.8 %).

Labour market: If the economy falters, unemployment rises after a certain period of time. The unemployment rate climbed to 3.8 % in January 2016 – a year earlier it stood at 3.5 %. In total 163,000 people are now registered as unemployed – 8.4 % more than in January 2015. That is the highest level since April 2010. Companies which primarily manufacture in Switzerland and only benefit to a limited extent from cheaper purchasing prices abroad are being hit. These include traditional sectors of industry, such as metalworking, electrical engineering, watchmaking, mechanical engineering and automotive manufacturing. “We anticipate further redundancies in industry,” Neff indicates. Valentin Vogt, chairman of the employers’ federation, anticipates that the rise in the value of the franc will have cost around 20,000 jobs by mid-2016. Unemployment figures in Europe are currently falling. Germany has reported its lowest unemployment since 1991. In the German federal states of Baden-Württemberg and Bavaria, which border Switzerland, the rate fell to 3.7 % and 3.4 % respectively in December.

Structural change: The growth in GDP hides the fact that Swiss industry is in recession and is shrinking. Around 45,000 jobs have been lost here since 2008. The companies oriented towards foreign markets have attempted to retain their market shares there by relinquishing their profit margin. But now they are increasingly focussing on procurement abroad, relocation, cost-saving measures and headcount reduction. They lack the planning certainty required for investing after the end of the minimum rate. “The export-oriented companies have not yet come to terms with the appreciation of the Swiss franc,” says Daniel Küng, head of Switzerland Global Enterprise, the organisation responsible for promoting foreign trade. “Last summer, many companies simply didn’t know how to deal with the currency appreciation or how to retain revenues and profit margin.” The situation has since been alleviated somewhat thanks to a slightly weaker Swiss franc. “Companies have increased productivity, extended working hours, purchased abroad more and relocated or halted processes,” says Küng, outlining the results of a business survey. “De-industrialisation has begun in Switzerland,” confirms Franz Jaeger, an experienced economic policy-maker and emeritus professor of economics at the University of St. Gallen. The Swiss economy is undergoing far-reaching structural change, “but this is based on distorted exchange rates that are not justified in real economic terms”, criticises Bernd Schips, former head of KOF.

Shopping tourism: For most people the most immediate effect of the stronger Swiss franc is that they can now go on holiday abroad less expensively and can shop more affordably on the other side of the Swiss border. Having overvalued Swiss francs in their pocket has encouraged the Swiss to travel abroad much more often: last year, a total of around 12 to 13 billion Swiss francs was spent abroad. The Swiss retail sector is losing out on billions of francs in revenues due to the distorted currency rate. Many shops in the city centres of Basel and Zurich have even closed down. Conversely, Swiss tourism has suffered a significant decline in visitors from Europe. The number of overnight stays by Europeans fell by 4.3 % and the decrease was even greater in the mountain regions. The growing number of Chinese tourists can only partly make up for this shortfall because spending by Asians on accommodation and food is only a fraction of that by European visitors.

Deflation: The currency appreciation has led to a huge fall in import prices. This drove consumer prices down to minus 1.3 % in December compared to the previous year. The National Bank should in fact ensure monetary stability, but prices have been falling for several years.

Savings: The negative interest and extremely low interest rate levels are weighing down savers and pension funds, which are barely achieving any yield on their capital investments. The pension fund association Asip estimates a direct shortfall of around 400 million Swiss francs as an express result of negative interest. However, the base rate would probably have been lowered into the negative range even if the minimum exchange rate had been continued.

The costs of abandoning the minimum rate are placing such great strain on the economy because the Swiss franc strengthened abruptly. A long-term view over a 40-year period shows that the Swiss franc’s external value compared to 27 countries – adjusted for inflation – has only risen by 0.4 % a year on average. The economy can, of course, cope with periods of continuous currency appreciation.

The sudden drop in the euro after the abandonment of the minimum rate from 1.20 to around 1.02 Swiss francs led the National Bank – in addition to introducing negative interest – to intervene in the foreign exchange market after January 2015. “The value of the franc has risen so strongly that it cannot continue without a damaging impact on the export industry and tourism,” remarked Serge Gaillard, Director of the Federal Finance Administration. In summer 2015, the SNB stabilised the rate at around 1.04 francs when the Greek crisis flared up again by means of currency purchases of 18 billion Swiss francs. A franc rate close to parity with the euro was deemed too damaging to the Swiss economy. In January, the SNB was able to maintain the rate at around 1.10 Swiss francs.

Criticism of the National Bank

The traces of the currency purchases are apparent in the SNB’s balance sheet. From January 2015 to January 2016, the foreign exchange reserves rose again – by 77 billion Swiss francs – and now stand at 575 billion. Around half of this increase is attributable to SNB interventions, while the remainder is due to slightly stronger foreign currencies and earnings from foreign currency investments.

Criticism of the National Bank’s course of action has grown. Since January 2015, the monetary authority has relentlessly reiterated that there was no alternative to de-coupling from the euro. However, such rhetoric is not shared by all economists. Professor of economics Jaeger firmly believes that more vigorous intervention is needed. “The SNB must weaken the franc,” he stated last November. The economist Bruno Müller in turn recommends – as do a number of professors – a new minimum rate against a currency basket made up of two units euro and one unit dollar.

However, there are currently strong indications that the National Bank is not seeking a radical change of direction but is instead working with an implicit minimum rate which is not being declared publicly. With the current rate at around 1.10 Swiss francs to the euro, it has already been able to significantly improve the situation for large sections of the Swiss economy.

Daniel Hug is Chief Business Editor at the “NZZ am Sonntag”

Comments (14)
  • Profairness
    Profairness at 30.03.2016
    Es ist nur die halbe Wahrheit. Wenn es eine Reihe von Professoren gibt, die das Handeln der Nationalbank kritisieren, so gibt es ebenso eine Reihe die das Gegenteil sagen.
    Show Translation
  • rupsel
    rupsel at 30.03.2016
    Das aber die Auslandsschweizer darunter leiden, wegen den Wechselkursen kein Wort, oder viel zu hohen Gebühren für Auslandsschweizer bei den Banken.
    Die Nationalbank treibt da ein Spiel das Schweizervermögen vernichtet und zwar der Schweizer Bevölkerung seines.
    Wenn die Wirtschaft endlich mal mehr für die Produktion tun würde als nur in Gebäude und aufgeblasene Verwaltung inkl. den Manager die horrende Bonus abstauben. Dann würde das ganze anders Ausschauen aber eben der kleine kann sehen wo er bleibt. Das gleiche gilt für die Bundesverwaltung und Parlament mit überbezahlten Bundesrat. Da wird nichts grossartiges gemacht sondern nur kassiert.
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    • Kurt
      Kurt at 01.04.2016
      Dass der Auslandschweizer im EURO-Raum unter der de facto Aufwertung leidet ist nur bedingt wahr. Ein AHV-Rentner im EURO-Raum hat doch dadurch eine Rentenaufbesserung von ca. 10% bis 20%
      Andersherum sind die hohen Kontogebühren für Auslandschweizer. 6.-CHFR pro Monat sind für die Bank, bei 2000.-CHFR Rente = 3.6% Bruttorendite. Dazu kommt für die Konvertierung in EURO nochmals ca. 5% für die Bank. Also eine Belastung für den Rentner von ca. 8,6% auf seine Einkünfte. Also wiederum ein gutes Geschäftsmodell für die Banken.
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  • Ralf Muggli
    Ralf Muggli at 31.03.2016
    Kein Wort zur Schweizer Vollgeldinitiative in diesem Artikel...erstaunlich und syptomatisch. Das Pferd wird so lange geritten, bis es zusammenbricht. Die Machtoligarchen verdienen danach noch am Kadaver...aber was kommt danach? In Wahrheit traut sich niemand persönlich, sich zu weit von der Futterkrippe zu entfernen, weil er/sie es nicht wirklich durchschaut und hinterfragt. Bis er/sie irgendwann selbst zum Opfer dieses irrsinnigen Machtsystems wird. Ups, war das jetzt hetzerisch oder ehrenverletzend?
    Show Translation
  • Erwin Balli-Bautista-Ramos
    Erwin Balli-Bautista-Ramos at 31.03.2016
    In medias res
    Das vorhersehbare desaströse Eurodebakel der Nationalbank.
    Der Umstand, dass jenseits der schweizer Grenze die Welt nicht aufhört. Ebenso, dass sich der CFR infolge seiner Eigenschaft als geradezu ideales Spekulatiionsobjekt an-
    bietet, verbunden mit dem vorhandenen internationalen Ri-
    sikopotenzial, lässt doch nur einen einzigen Schluss zu.
    Wechsel der Währung. Denn zur Zeit sind wir noch in der Lage zu verhandeln. Aufgrund der obwaltenden Umständen ist es doch abzusehen, dass der CFR kurzfristig durch die Decke gehen wird. (Dasselbe, ein wenig anders, gilt auch für einen Eintritt in die EU)
    Es ist mir bewusst, dass aufgrund meiner nüchternen Ana-
    lyse ein wahrer Tsunami der Empörung aufkommen wird. Ich kann damit leben, Denn die Erfahrung meiner letzten 50(fünzig)Jahren beweisen mir immer wieder folgendes. Je lauter das Wehgeschrei und je dicker die Krokodilstränen,
    desto näher bin ich bei der WAHRHEIT.
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  • Philipp Rederlechner
    Philipp Rederlechner at 31.03.2016
    Ich bin einer von denen, die wegen dem Frankenschock die Arbeit verloren haben. Doch statt mich Arbeitslos zu melden, bin ich ins Ausland ausgewandert und arbeite nun dort...
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    • Erwin Balli-Bautista-Ramos
      Erwin Balli-Bautista-Ramos at 02.04.2016
      Sehr geehrter Herr Ph. Rederlechner

      Allen Respekt Ihnen gegenüber und viel Glück weiterhin.
      Show Translation
  • Daniel Trächsel
    Daniel Trächsel at 03.04.2016
    Die Nationalbank agiert im Stillen, das ist nötig und gut so, weil Sie sich damit nicht mehr erpressbar macht bei den Währungsspekulanten, die wissen dann nicht im Voraus ob die Nationalbank stützt, deshalb sind die Bewegungen im Euro derart heftig, würden Sie gestützt, wären die Ausschläge im Devisenmarkt nicht so schwankend, aber man kann täglich sehen wenn die Nationalbank eingreift!
    Show Translation
  • Peace Officer
    Peace Officer at 03.04.2016
    Die Arbeitslosenrate in der BRD ist mit Vorsicht zu geniessen bzw. zu hinterfragen. Menschen mit einem Ein-Euro-Job und Leiharbeiter die nicht genügend verdienen um ihren Lebnsunterhalt zu finanzieren erscheinen in der Arbeitslosenstatistik nicht und sorgen somit für eine verzehrte Arbeitslosenquote!
    Show Translation
  • E F Luthi
    E F Luthi at 03.04.2016
    Nun, dieser Bericht ist auch mit Vorsicht zu geniessen. Dass der starke Franken 10'000 Arbeitsstellen gekostet hat ist auch nur teilweise richtig und berücksichtigt den Rückgang der Weltwirtschaft in keiner Weise. China, Brasilien, Europa schwächelt und kauft deshalb eben auch weniger von der Schweiz. Dass dies mit dem Loslösen des Frankens begründet wird, zeit wie politisch die ganze Sache wieder dargestellt wird - eben links. Warum wird nicht auch gesagt wie viele neue Stellen in derselben Zeit geschaffen wurden? Zudem einmal mehr; es ist nicht der starke Franken schuld, sondern der schwache Euro mit seiner unregierbaren EU. Im weiteren ist auch zu erwähnen, dass die Schweiz mehr aus der EU importiert als exportiert, also die Handelsbilanz zu Gunsten der Schweiz ausgefallen ist - eben wegen des schwachen Euros!!!
    Show Translation
  • ilona
    ilona at 04.04.2016
    Absolument aberrant, la decision d'un taux negatif, rien que cela impacte d'une maniere tres forte la quasi totalite des petits epargnants suisses. Il faut maintenant PAYER les banques, pour qu'elles puissent utiliser l'argent des epargnants afin de faire des investissements? Ridicule et debile. De plus, le manque a gagner du tourisme reduit a cause du franc 'fort' impacte, une fois de plus, les petits commercants. Toute la chaine est touchee en fait, du producteur et certainement au consommateur. Tres mauvaise decision!!! Arretez de jouer avec l'argent du contribuable!
    Show Translation
  • Ernst  Ruetimann , Trang
    Ernst Ruetimann , Trang at 07.04.2016
    Die Schweiz ist nur ein kleines Raedchen in der globalen Wirtschaft . Natuerlich hat die Aufhebung des festen Wechselkurses zum EURO die Finanzwelt schockiert , aber es gibt viele andere Faktoren , welche die heute missliche Lage der Weltwirtschaft mitbestimmen . So der Einbruch der Rohstoffpreise , der Rueckgang des Exportes von China , und anderes .
    Davon betroffen bin ich in zweierlei Hinsicht ; zum Einten der Wert meiner Aktien , die in dieser Rezession merklich nachgegeben haben ; und dann der festere CHF Wechselkurs , welche mir eine hoehere Rente in Thai Baht bescherrt .-
    Show Translation
  • Christophe Winkler
    Christophe Winkler at 07.04.2016
    The continued Euro weakness, possibly made worse by Brexit or another political or economic shock (poor capitalisation of European banks or Greece), could lead to Swiss franc at this rate or higher for a number of years. The labour force's flexibility (working longer hours for same pay or less shifts for pay cut) means that many jobs have been kept, but i worry that a longer term strong (v Euro) Swiss Franc will have a permanent impact on industry in Switzerland (especially at a time when global demand is slowing).
    Show Translation
  • D Hobiger
    D Hobiger at 11.04.2016
    I laud a speedier decision-making as to who may stay and who may not. I live in Australia and would be cautious about the idea of free legal representation for refugees. Here we have had that for years, with the result that some refugees have spent months, some even years in detention centres, always hoping that a 'no'-decision would be overturned. This has caused a lot of angst, mental disease and self-harming, fed by lawyers dangling the carrot of a wonderful life in Australia (although Australia suffers from increased unemployment, like most other coutries). In the end, everyone is frustrated: the refugees who wait for years and don't come in, and the Australians, because they are tarnished by the media as heartless, despite welcoming 1000s of refugees every year. The only happy ones are the lawyers who get paid handsomely out of the citizens' taxes. Personally, I would advocate for a speedier procedure, including free legal representation for ONE appeal only (and not hundreds ad eternum et ad nauseam).
    Show Translation

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