© Alvin Tan
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Switzerland's manufacturing output steadied in April suggesting companies are coping with the stronger Franc. The Swiss index though is still near its lowest since October 2012 and remains below the 50-point level. However, analysts from Credit Suisse Group AG mention that an "overall economic recession is unlikely". Do you believe the analysts prove to be right?
At the current moment, we are definitely seeing some negative impact from the very strong appreciation of the Swiss Franc and as mentioned previously, the weaker Manufacturing Price index numbers alongside the KOF leading indicator have been weakening. These estimates keep dropping from late last year already; hence, it is clear that we are facing a deceleration phase. In terms of negative GDP growth, we are not expecting to see some worse results ahead; therefore, we are not anticipating the Alpine country's economy going into a deep recession.
Switzerland attracted the fewest companies in at least a decade last year after voters passed measures that aim to limit immigration and the country starts revising corporate tax breaks. The number of foreign firms setting up operations in Switzerland dropped 8 % according to the Conference of Cantonal Economic Directors. Could it be that the Alpine country is losing one of the beneficial motors that helped contribute to five consecutive years of economic growth? What outcomes for Swiss economy do you expect to see?
That drop, whilst being quite significant, mostly can be considered as an outcome of the anti-immigration law. At the same time, it is not completely clear how the situation continues to develop in this particular matter. Obviously, it is making the Alpine country less appealing for foreign companies, since it would significantly impact the labor market in Switzerland due to the country's dependency on the immigration. However, I believe that quite apart from the anti-foreigner sentiment and the mentioned legislation, the overvalued currency is also having a substantial effect on investors looking at Switzerland to operate their businesses. That being said, the decline in foreign direct investments will eventually broadly contribute to the negative growth factor that I have mentioned earlier.
What will be the major drivers for the Swissie and what are your forecasts for EUR/CHF and USD/CHF for Q3 and for the end of this year?
In terms of the EUR/CHF currency pair, we expect it to go higher towards 1.08 for the Q3, as the Swiss National Bank moves to ease further probably to more negative deposit rates or other restrictions on foreigners holding Swiss accounts. Thus, we believe that the main driver will have to be the Swiss monetary policy in essence in order to drive the Swissie weaker. We are looking at the USD/CHF at 1.05 levels in the Q3. In the end of 2015, in our view the EUR/CHF will continue to move higher and we forecast to see the pair at 1.11, while the USD/CHF will be at 1.08. The main driver for the USD/CHF quite apart from the SNB policy will, what we believe to be a resumption of the Greenback uptrend in the second half of this year.