The Swiss franc is now overvalued by 10% against the euro: this is what Credit Suisse economists said in "Monitor Switzerland" for the second quarter of 2019. And this condition, they say, will continue: it may even get worse. In five to ten years, there is likely to be parity between the euro and the franc. Moreover, it is only a matter of time, and the Swiss industry must be prepared for it, because the individual sectors are well prepared for it.
Certainly: an excessively abrupt appreciation of the currency would be the National Bank of Switzerland (SNB) to try to intervene in the foreign exchange market – as it has done massively in recent years.
But why this permanent pressure? According to the CS analysis, the overvalued Swiss currency has to do with the lowest inflation in this country and the foreign trade surplus. At the same time, prices are rising in the euro area much stronger for years.
Wanted: the "fair value" of the franc
On the other hand, it is a myth that the franc is notoriously overvalued. It has to do with a recent phenomenon: between 2003 and 2010, the Swiss currency was quite devalued. The exchange rate between the euro and the franc was significantly higher than would be appropriate, according to the CS experts.
They calculated the so-called "fair value", that is, a theoretically correct value of the franc, measured by purchasing power parity.
This "fair value" is currently 1.24 francs for the euro. And so is the Helvetica motto with yours today. exchange rate over-rated by 1.12 by almost 10 percent.
The lower the inflation in the Switzerland Comparing to euro areaThe deeper the "fair value". According to estimates by CS economists, it will continue to decline and in about five years exchange rate sector.
"The question is not whether euro-franc parity comes, but when," he says. Claude Maurerwho the economic analysis Switzerland in the big bank.
For most industries, the franc is overvalued
For years, the Swiss economy has benefited from favorable currency conditions and accumulated capacities. Due to the overvalued franc, these had to be reduced again, many companies were under pressure. high CS But above all, the abrupt change from the undervaluation of Franconia to overvaluation was painful.
Although many companies have adapted to the weak euro since then, even today exchange rate very expensive for most industries. The pharmaceutical industry is better there, followed by the watch industry. On the other hand, overvaluation is a major problem for Swiss mechanical engineers.
The price of the island of high price
How do companies adapt to stay competitive? For example, outsourcing to the euro areapay wages in euros. CS specialists are expected to expect, especially in the textile, automotive and food industries, another shift of activity overseas.
This affects, in particular, jobs in production, which Switzerland simply too expensive to resist price competition. Especially in times of crisis, jobs can be transferred quickly. This is the price of the island of high price Switzerland,
This is also the conclusion of Oliver Adler, CS Chief Economist for the Switzerland: "The franc is highly unsuitable for the Swiss industry."