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UBS outlook Switzerland: Weak euro, not strong franc
The Swiss franc is by no means as strong as it is perceived to be in public. Compared to leading currencies it has even weakened internationally. The franc’s strength is rather the result of a weakness in the euro. These are the conclusions drawn by the economists at UBS CIO Wealth Management Research in the latest edition of UBS outlook Switzerland.
Zurich/Basel, 12 September 2012 – In the latest issue of “UBS outlook Switzerland” UBS focuses on the subject of the Swiss franc. In truth, the current strength of the currency is above all a result of euro weakness. From the global perspective and taking into account the much lower inflation rate in Switzerland than elsewhere, the franc is currently pretty much in line with the long-term trend. This is little consolation to those who export to Europe. By contrast, those exporting to emerging economies and the USA are benefiting from the fact these markets have relatively strong currencies and higher growth.
Depending on the industry, the determining factors for Swiss exports vary markedly. While the metalworking industry is highly dependent on economic development abroad, the evolution of Swiss pharmaceutical exports is practically unaffected by it. Pharmaceutical exports, on the other hand, react to changes in foreign exchange rates while the exchange rate is scarcely relevant for chemical exports. Overall the influence of the exchange rate on Swiss exports is much smaller than the influence of the state of the world economy, which puts the importance of minimum trading limits for economic development somewhat into perspective.
In their analyses, UBS economists conclude that Swiss companies should not make their location decisions solely dependent on current exchange rates. At the moment Germany is admittedly a very reasonable production location for exporters. But Swiss companies which outsource their production to Germany could be jumping out of the frying pan into the fire. This is because any sustainable solution of the euro crisis will require a significant increase in German production costs compared to those in Switzerland.
Besides analyses of the property and financial markets, the supplement provided with UBS outlook Switzerland includes an assessment by our analysts of the equity and bond markets in Switzerland.
UBS lowers growth forecast
The sluggish development of the global economy and European debt crisis are also taking their toll on the Swiss economy. There was a slight decline in the gross domestic product in the second quarter. UBS has lowered its forecast for Swiss economic growth in the year-to-date from 1.3% to 1.1%.
Daniel Kalt, Chief Economist UBS Switzerland
Phone +41 44 234 25 60, firstname.lastname@example.org
Caesar Lack, UBS CIO Wealth Management Research
Phone +41 44 234 44 13, email@example.com
Sibille Duss, UBS CIO Wealth Management Research
Phone +41 44 235 69 54, firstname.lastname@example.org
Stefan R. Meyer, UBS CIO Wealth Management Research
Phone +41 44 235 38 26, email@example.com
UBS outlook Switzerland: www.ubs.com/research
UBS publications and forecasts for Switzerland: www.ubs.com/economicresearch