Thursday, January 29, 2015

Economy: Did The Swiss Central Bank Cause A Recession?

(Drivebycuriosity) - Switzerland has a high chance to dip into a recession, writes Bloomberg (bloomberg). Four of 10 economists, surveyed by Bloomberg, predicted a recession for the country. These pundits blame it to the Swiss Central Bank.

Two weeks ago the Swiss Central Bank ditched the pegging of the Swiss franc to the euro (driveby). As a result the exchange rate of franc jumped temporarily more than  20% against the euro and other currencies. Swiss exporters got temporarily 20% more expensive on the global markets, Swiss importers cheaper.

Some pundits assume that the Swiss economy (GNP) will shrink at least two consecutive quarters (definition of a recession) because the Swiss will export much less watches and other products and import more which would reduce the demand for Swiss products significantly.

I suppose that these claims are exaggerated. Before the freeing of the franc the Swiss currency has been glued to the Euro, which fell around 20% against the Dollar since last June. The now free floating franc jumped just back to the levels from last summer and erased the losses caused by the weakness of the euro. Now the franc cost in US Dollar about the same as last summer (

I think Swiss exporters lost just the artificial advantage (lower prices on the international markets), which have been caused by the free falling euro. They didn`t need this advantage because the sound Swiss economy does not have the severe problems of the euro zone (Greece, Italy & Co). In dollar calculated  watches, medicaments and other Swiss products cost about the same like last summer.

Otherwise the Swiss have to pay less for oil, copper and food, because the commodities are calculated in Dollar and got cheaper as the Swiss Franc rose. I think that lower costs for energy and materials will mostly compensate for the turbulences on the currency market. Therefore the claims that the Swiss central bank caused a recession are ill-founded.

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