Switzerland’s Government Pledges $1.1 Billion to Counter Franc’s Strength
The Swiss government plans to spend 870 million francs ($1.1 billion) as part of an economic stimulus package to help counter the impact of the franc’s “massive overvaluation.”
The measures aim to support tourism and exports and preserve jobs, the government said in an e-mailed statement from Bern today. The ruling coalition had initially said it plans to spend as much as 2 billion francs. The parliament will discuss the package next month.
“The package supports the Swiss economy in an extraordinary situation,” Economy Minister Johann Schneider- Ammann said at a briefing. “We’ll probably have to live with the strong franc for a longer period of time.”
The franc’s 7.5 percent ascent versus the euro this year to a record 1.0075 on Aug. 9 is threatening to choke the country’s exports just as the risk of a recession in Europe is rising. The Swiss central bank lowered borrowing costs to zero earlier this month and boosted liquidity to the money market to help weaken the currency and protect the economy.
The franc rallied from near a five-week low versus the dollar, trading at 80.30 centimes at 5:26 p.m. in Zurich. It was at 1.1577 against the euro, up 2.3 percent on the day.
“Today’s announcement was a clear disappointment,” Christian Gattiker, an analyst at Julius Baer Group Ltd (BAER), said in an interview with Bloomberg Television from Zurich. “This is pretty lukewarm in terms of the Swiss economy.”
While the currency has weakened about 4 percent against the euro over the past month, Schneider-Ammann said that it’s important not to “give in to any illusion.”
“The situation hasn’t calmed down,” he said. “Volatility remains high.”
The Swiss economy may struggle to gather strength as cooling global demand adds to export pressures. In the 17-member euro region, the country’s largest export market, economic growth slowed to 0.2 percent in the second quarter, the worst performance since a recession in 2009.
Holcim Ltd. (HOLN), the world’s second-largest cement maker based in Jona, Switzerland, said last month that profit may not grow this year as U.S. markets will remain “flat” and demand for construction from European governments was “subdued.”
Schneider-Ammann said the government doesn’t have an estimate for a franc level that’s still considered tolerable to exporters and the economy.
“It’s an extraordinary situation, which calls for extraordinary measures,” he said. Still, it’s up to the central bank to influence the exchange rate if needed, he said.