Having dealt with the Swiss franc’s last currency crisis in 2011, Swiss economy minister, Johann Schneider-Ammann, is no stranger to managing currency induced pressures on the economy. But the shock that hit on January 15th, when the Swiss National Bank removed the peg against the euro, left even the experienced former business leader startled.
“I was surprised!” Schneider-Ammann told A&O Acquisitions about the moment he was informed of the move. “Though it was clear it was going to happen sooner or later. I immediately said to myself ‘It’s our national bank being independent. A decision has been taken (…). That has strengthened the SNB’s credibility.”
But to Schneider-Ammann, the rise in the franc was by no means unexpected: “The swiss franc is strong, because we are successful, because we have a strong political system, a very sophisticated education system, a focus on science and innovation”
However, this success comes at a price. The rapid appreciation of the currency after the SNB decision has led to a raft of downgrades for economic growth for 2015. Credit Suisse only expects to see 0.8 percent growth for 2015 vs a previous forecast of more than 2 percent. Other are more pessimistic and forecast the economy to slide into recession and deflation.
Schneider-Ammann isn’t one of them. Although he believes the economy “will likely stagnate this year and a growth rate of 2.4 percent as we expected in 2014 is no more achievable, I do not want to use the term recession”
There has been much speculation in the Swiss press whether the sectors hardest hit by the SNB move, like tourism and export-sensitive manufacturers, can expect a stimulus program from the government.
Schneider-Ammann told he has no such plans but says the government will continue with its growth policy: ” Growth does not mean volume, but quality. We invest in innovative activities. We have done that and will continue to do so. We are also looking at ways to lower bureaucracy”
The outlook for Swiss competitiveness has taken a big hit in previous years, with the strong Swiss franc just being one headwind. The planned curbs on immigration from the EU that Switzerland must enact as a result of last year’s referendum, a move to limit executive compensation, the breakdown of banking secrecy have been cited as other deterrents for doing business in the Alpine country.
But the minister is relaxed: “We have the most liberal labor law in the world, good infrastructure and the best education system. The Swiss do not only work 36 hours a week. We are willing to work above the European average. We are reliable. In other words, we have an offer not only defined by exchange rate.”
Speaking of the exchange rate – where does Schneider-Ammann think it should be for Switzerland to remain competitive?
“I do not want to speculate. 1.20 was already a huge challenge to realise not only revenues but also profits. The EUR/CHF rate of 1.05 is a huge challenge for the smaller and mid sized companies. For me it’s important to see the EURCHF rate go into a direction of purchasing power parity – and that’s above 1.20.”