Swiss Franc

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Swiss Franc

The rise of the Swiss franc is a double-edged situation: favorable for the investors, but not so good for the Swiss economy

Because of a global economy with a euro zone which is grappling with its consuming debt crisis and with Middle East countries which are passing through turmoil, investors are looking for safe places to “park their cash” and the perfect low-risk country is Switzerland. From the beginning of 2011, the franc pushed up its value by 24% against the euro and by 12% over the dollar. The result was the higher trade level recorded in the last 30 years.

The government believes that this strong franc is the result of “an overvalued phase” and announces an estimative growth by 2.1% of the gross domestic product by the end of 2011. This statement is released after last month the officials announced that their 2012 forecast has been reanalyzed and reduced from 1.9% to 1.5%.

Like expected, there is a lag between the fluctuations of the exchange-rate and the effects it has on the economy. However, some signs of slowdown have already been registered especially in Switzerland’s export sector. In addition, since the beginning of 2011, the SMI equity index has decreased by 3% while Germany has registered an increased by 8% of the blue-chip DAX index. One of the strongest Swiss companies, Nestle, which is spread in the entire world because of its 485 factories, has registered sales reduced by 10% because of the franc’s strength. This event has had an impact on its shares which dropped by 3.6% in 2011.

The Central bank of Switzerland has tried to slow down the franc’s rise, but with no effect until now. However, the experts believe that this is just a temporary situation. The franc will continue to rise or maintain its current growth only if the European Central Bank doesn’t solve the Greece issue. By doing so, the European officials would be able to eliminate some of the euro-zone problems that have been affecting the euro’s strength. The only problem is that an end to Greece’s problems is not very likely to come in the near future and this situation will allow the franc to become even a stronger competitor of the euro.

The faith of the Swiss franc also depends on the decision the US authorities will take on August 2, about the ceiling debt. Because of all these currency issues, many investors are now opting for Asian currencies and have lately taken a lot of interest in the Singapore dollar which is considered by Paul Robson to be “a good trade over the long term”.

Because of the economical crisis the situation is tense all around the globe and as people wait for decisions to be made the concerns keep raising on a daily basis. Is it time to feel insecure about our futures?

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