Photographer: Harold Cunningham/Bloomberg

The Real Franc Surprise? Swiss Fallout Wasn't as Bad as Feared

  • Doomsday scenarios for Switzerland's economy didn't pan out
  • SNB set to rack up record loss for 2015 due to rallying franc

A year after the Swiss National Bank suddenly abandoned its currency cap, it looks like the doomsday scenarios for the country haven’t panned out. But it’s still too early for SNB President Thomas Jordan to pop the champagne.

On paper, the SNB may have inflicted the biggest wound on itself. It’s set to incur a record annual loss of 23 billion francs ($23 billion) after its foreign-exchange holdings depreciated in value due to the franc’s ascent from the cap of 1.20 per euro to about 1.09 now. While that’s a book loss, a repeat could jeopardize future payouts to Switzerland’s cantons.

With the stronger franc depressing import costs, consumer prices fell 1.1 percent in 2015, the most since 1950. They’re set to fall again this year, before rising in 2017, according to the central bank. Declining prices are a “necessary part of the adjustment process” for the economy to stay competitive, SNB Board Member Andrea Maechler said on Tuesday.

Swiss blue chips plunged when the news of the cap exit broke on the morning of Jan. 15, 2015. Yet from its one-year low, the index rebounded and hit a eight-year high in August.

The pace of economic growth halved in the wake of the SNB’s cap exit. Yet Switzerland dodged a recession. The SNB expects expansion of “just under” 1 percent in 2015 and an acceleration to 1.5 percent this year.

The jobless rate rose a five-year high of 3.4 percent in December, with the number of people out of work up 8 percent from a year earlier. According to government forecasts, the rate will increase to 3.6 percent in 2016. However, for SNB Vice President Fritz Zurbruegg, “if you look at joblessness in 2015, most forecasters were positively surprised.” Trade Union Unia isn’t convinced: it called for a resignation of the SNB governing board on Thursday.

“At first glance, it doesn’t look so bad -- they avoided a technical recession last year, exports didn’t collapse and the jobs market still seems to be solid,” said Alexander Koch, an economist at Raiffeisen Schweiz in Zurich. “But we think there will still be fallout. It depends on the currency development.”

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