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Businesses fear effects of strong franc

(Keystone)

Switzerland's export driven economy is facing up to the prospect of a tough few months after the sudden appreciation of the franc this week.

The franc soared to SFr1.43 against the euro on Monday, the strongest it has been in eight years. Overnight, Swiss goods have become significantly more expensive for the Euro zone - Switzerland's biggest market.

The sharp downturn in the global economy has already resulted in the first monthly fall in four years of Swiss goods sold abroad. Export figures in September were 8.2 per cent lower than the previous month, taking into account price swings and seasonal factors.

Bank Sarasin economist Jan Poser told swissinfo that the franc has strengthened nearly ten per cent against the euro since the start of the year, which could lead to a further five per cent drop in export sales.

"The authorities are alarmed that this could potentially have quite a strong impact on the economy. The economy has already weakened and this adds to the pressure on the central bank to cut interest rates," he said.

Early this month the Swiss National Bank announced a 0.25 per cent cut in the key interest rate to 2.5 per cent in a bid to revive the domestic financial market.

Switzerland is particularly vulnerable to currency fluctuations as it exports so many goods and services to other countries. The first six months of the year saw a SFr9.7 billion trade surplus with exports rising 7.5 per cent compared with a 4.7 per cent increase in imports.

Long-term problem?

Swissmem, the umbrella organisation for many manufacturing firms, said that four fifths of all engineering products end up overseas, with two thirds of this figure destined for the European Union.

"We could not predict this sudden shift in exchange rates and they could change again in the near future," Swissmem spokesman Rudolf Christen told swissinfo. "We would surely be worried if the latest change turned out to be a long-term development."

"If current exchange rates last longer than three or four weeks then it would be a real problem for us," he added.

But Jan Poser believes the strong franc is here to stay as investors retire their funds to the safe haven currency to sit out the current financial crisis.

"If you look back to the last global downturn in 2001-2 you will see that the franc stood at around SFr1.45 against the euro for some time," he told swissinfo.

Tourist industry braced

"Investors have historically seen the Swiss franc as a safe haven since the Second World War because they believe that if something goes wrong it will not happen in Switzerland. Added to that, interest rates are normally comparatively lower."

The tourist industry is also likely to feel negative effects of the strong franc. Hoteliers were already grumbling at a meeting in Zurich on Monday about a predicted downturn in overnight visitors.

The industry is confident, however, that the core market of Europe and the United States would recover relatively quickly. But it was concerned about the long-term effects on visitors from emerging economies such as India who generally spend more when they come to Switzerland.

swissinfo, Matthew Allen in Zurich

Main export destinations

Swiss exports totalled some SFr197.5 billion in 2007 compared with SFr183.5 billion in imports.

Exports to Germany were nearly SFr42 billion in 2007, up 15% from the previous year.

Goods sold to the US dipped 2.5% last year to some SFr20 billion, but the trade surplus still amounted to SFr8.8 billion.

The US is also the biggest destination for Swiss foreign direct investments, rising from SFr114.3 billion to SFr132.4 billion between 2005 and 2006.

Swiss exports to Italy climbed more than 10% to SFr18 billion last year.

France received SFr17 billion of Swiss exports in 2007, a rise of 8.6% from the previous year.

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