The Swiss central bank said companies expect sales to weaken further over the coming months as the global economy falters and the franc hurts export orders.
“Uncertainty about future developments has increased perceptibly,” the Swiss National Bank in Zurich said in its quarterly report today. “The caution being exercised by companies is expressed in their restrained employment and investment plans. Their turnover expectations for the next few months have diminished substantially.”
The SNB, led by Philipp Hildebrand, maintained its franc ceiling of 1.20 versus the euro on Dec. 15 and pledged to take further measures if needed to protect the economy. While a government panel is also looking at ways to weaken the currency, such as capital controls and negative interest rates, the ruling coalition doesn’t plan to implement them, Finance Minister Eveline Widmer-Schlumpf said on Dec. 21.
The SNB reiterated today that it will defend the ceiling with “the utmost determination” and is ready to buy foreign currencies in “unlimited quantities.” The Swiss currency “is still high and should continue to weaken over time,” it said.
The franc, seen as a haven in times of turmoil, traded at 1.2222 against the euro as of 10:35 a.m. in Zurich. It reached a record 1.0075 against the euro on Aug. 9.
“Although the introduction of the minimum exchange rate for the franc against the euro eased the situation for companies and gave them planning security, the exchange rate situation remained a focal point of attention,” the SNB said, citing results of its quarterly survey of companies. “The fragile state of the global economy depressed confidence.”
With the franc eroding earnings just as export demand falters, the Swiss economy is showing increasing signs of slowdown. Manufacturing output dropped for a third month in November and the KOF leading economic indicator fell to the lowest in more than two years.
The Swiss economy will probably stagnate in the current quarter, the central bank said today. Gross domestic product may rise between 1.5 percent and 2 percent this year and 0.5 percent in 2012, it said.
Asked in the survey about the negative impact of franc gains, almost half of companies said they are lowering domestic costs, with 21 percent implementing or considering job cuts. More than 30 percent of companies hurt by the currency are also considering options including relocation.
Sixty-three percent of survey participants reported negative effects from the franc’s appreciation, up from 58 percent in the previous quarter, the SNB said. Thirty-nine percent said the impact was significantly negative. Almost two-thirds of exporters reported lower profit margins in export markets, with 47 percent reporting lower sales.
“The level of margins was still a problem” in the fourth quarter, the SNB said. “The main reasons for this situation are the continuing strength of the Swiss franc, increasing prices for some commodities and a weakening in demand. The pressure to optimise costs increased further,” with companies considering measures including “recruitment freezes, investment freezes and the introduction of longer working hours for the same wage.”
The SNB surveyed 228 companies in October and November.