Strengthening of Swiss Franc Burdens Swiss Economic Outlook

Bern, 14.06.2011 - Economic Trends and Outlook from the Federal Government’s Expert Group on Economic Forecasts - Summer 2011*. In spite of some early signs of slowdown, economic growth in Switzerland has been solid so far this year. However, the currency appreciation, which already represented a burden on Swiss exports during the last few months, has jumped even higher over the last few weeks. With the recent added strength to the Swiss Franc, new risks have emerged. The Expert Group of the Confederation now assumes that economic growth in Switzerland will continue to slow despite robust domestic demand, particularly in the construction sector. The Expert group forecasts GDP growth of 2.1% for 2011 and 1.5% for 2012 with the slowdown in growth predicted slightly increase in the unemployment rate by 2012.

World Economy
The outlook for the world economy remains uneven. Economic growth should remain subdued in many OECD countries, as has historically been the case subsequent to severe real estate and financial crises. In the US, economic recovery will probably continue to be sluggish or unsteady. Domestic demand will be affected by the weakness of the real estate market and by an unusually high unemployment rate for American standards.

Within the Euro-zone, the resilience and strength of some countries will continue to contrast with the weakness of some over-indebted southern European states. GDP growth in Germany is expected to reach more than 3% in 2011, while some other countries will only slowly pull themselves out of recession (Greece, Portugal and Ireland). The Japanese economy, following the strongest earthquake and tsunami recorded in history, has plunged into a recession. However, by 2012 at the latest, this recession should be replaced by a reconstructionled recovery. The negative effects of the recession in Japan in 2011 on the world economy should remain limited.

Robust economic growth is expected in almost all developing and transition economies. However, in many of these countries, central banks have been tightening monetary policies for some time now, in an effort  to counter increasing risks of overheating and rising inflation. Growth dynamics hence are expected to lose some of its momentum in 2011 and 2012, which already can be felt to a certain extent in China.

Economic Outlook for Switzerland
In spite of some early signs of slowdown, economic growth in Switzerland has been solid so far this year. Some sentiment indicators have showed a slight downward trend over the past few months (e.g. manufacturing PMI figures and incoming orders for the Swiss industrial sector, the index of consumer sentiment) remaining however at historically relatively high levels. The last available high frequency indicators remain thus compatible with continued economic growth, though less vigorous than in the past.

During the month of May, the Swiss Franc appreciated further and reached new record highs  compared to all major currencies. The real effective exchange rate of the Swiss franc (a measure of the value of a currency against a weighted basket of several foreign currencies divided by a price deflator) has now reached an all time high, significantly higher than the peak reached in the

It is difficult to assess for how long this phase of strong appreciation will continue. Against the backdrop of a still fragile global economy and given the growing doubts about the sustainability of high level of sovereign debt, the Expert Group assumes that the demand for safe currencies should continue. A significant downward correction of the Swiss franc is not expected in the short run.

For Swiss companies, the real exchange rate appreciation had a strong, negative impact on  price competitiveness. The strong resilience of the Swiss exports over the last few quarters is primarily the result of the vivid external demand (very positive impulses, in particular from the emerging countries, the US and Germany), that alleviated the negative impact of the exchange rate appreciation. Several companies have lowered their export prices (priced in Swiss francs) in order to remain competitive. Diminishing mark-ups  can be seen as a sign of falling profits in an effort to maintain market shares. When firms are forced to reduce their margin, it may be assumed that such a process cannot go on for long without repercussions, in the medium term on investments, wages and employment. Should the upward pressure on the Swiss franc persist, significant negative effects on export volumes can be expected in 2011 and 2012.

For all these reasons, the Expert Group maintains its prediction for Swiss economic growth in 2011 of 2.1%. Meanwhile it has revised its GDP growth forecast for 2012 downward to 1.5% ( previously 1.9%).

The positive performance of the Swiss economy this year and next, despite the exchange rate appreciation, is primarily due to the strong support of domestic demand. The elements driving domestic demand include in particular construction investment, thanks to the increasing population, low interest rates, and numerous civil engineering projects. Construction investment is expected to increase by 5% this year. Private consumption will also continue to drive growth. The increase in capital spending however, will probably experience a slow-down as a result of dampened foreign demand. The situation on the labor market has continued to improve since the beginning of the year. Employment, measured in full-time equivalents, increased further during the 1st quarter of 2011. The (seasonally adjusted) unemployment rate fell to 3% at the end of May. The short-term labor market outlook is good with vacancies on the rise. Various economic surveys indicate a continuing rise in employment and a further fall in unemployment across many sectors in the short run. Lower economic growth prospect, in particular for 2010  will impact the labor market negatively causing unemployment to rise slightly in 2012. The Expert group expects an unemployment figure (yearly average) of 3.1% for 2011 and 3.3% for 2012.
A positive side effect of the currency appreciation is that it helps keep inflation low The rise in raw material prices has in Switzerland, as opposed to many other OECD countries –not implied, until now, a rise in inflation. In the absence of wage inflation, the inflation rate for 2011 and 2012 should remain significantly below 1%.

Economic Risks
Uncertainties and doubts about the success of many governments' debt-reduction programs, associated with lingering negative market sentiment surrounding sovereign credit risks, that could lead once again to dysfunctional markets and further volatile exchange rate movements represent the main risks for the Swiss economy. Within the Euro-zone, in particular in Greece,  solving the debt crisis will be long and difficult.

The risk that government finances may trigger sovereign debt defaults remains difficult to assess. Critical sovereign debt thresholds are observed outside Europe as well, in particular in Japan and the United States. A potential loss of confidence of financial markets in the United States could  trigger a faster and sharper increase in capital market rates in a lot countries, from the currently low levels. Financial conditions for private and public borrowers would thereby worsen. An additional risk is related to the surge in commodity prices, Rising inflation figures and expectations in many OECD countries would then imply a swifter tightening of monetary policy in many countries.

In the light of the diverse global economic weaknesses and numerous uncertainties, the Swiss economy continues to face the risk of a further appreciation of the currency. The Expert Group assumes that the demand for safe currencies will remain high. An additional strong pressure on the Swiss franc would however jeopardize economic growth to  a serious degree.

* Four times per year, the  Federal Government’s Expert Group on Economic Forecasts publishes a document on the current outlook for the Swiss economy. The current forecast from June 2011 is commented in this media release. The “Konjunkturtendenzen” (engl.: ‘economic tendencies’), a quarterly SECO publication, appears in printed form as a supplement of the February, April, July and October editions of the magazine titled "Die Volkswirtschaft" ( It is also available on the Internet ( as a pdf file.

Address for enquiries

State Secretariat for Economic Affairs SECO
Holzikofenweg 36
CH-3003 Bern
Tel. +41 58 462 56 56
Fax +41 58 462 56 00


State Secretariat for Economic Affairs

Last modification 05.01.2016

Top of page