"Swiss-made" helped Switzerland weather currency storm

By John Revill

ZURICH (Reuters) - The Swiss-made trademark on products from watches to chocolates helped export-reliant Switzerland tackle a currency shock which risked dragging it into a recession, according to a government report published on Tuesday.

Swiss manufacturers invested in advertising, branding and product development so they retained customers even as prices rose when the safe-haven Swiss franc surged in January 2015, researchers from the Zurich University for Applied Sciences said.

The improved products trend was particularly marked in industries like matchmaking and machinery where research and development, branding and promotional spending were especially important, the researchers said.

The findings were part of a series of reports written to examine the aftermath of the so-called Swiss franc shock, triggered when the Swiss National Bank ditched its longstanding floor of 1.20 francs to the euro nearly three years ago.

That decision made Swiss exports 10 percent more expensive overnight and reduced Swiss economic growth to 0.6 percent in 2015 from 1.8 percent a year earlier, although the country dodged a recession which many economists had predicted.

Switzerland's economy withstood the crisis "surprisingly well", wrote researchers from the University of Basel in another study which was also prepared for the State Secretariat for Economic Affairs (SECO).

They added the 2015 currency shock, and an earlier one in 2011, had also made the Swiss exporters more resilient.

This meant that Swiss exports were only 1.4 percent lower than without an overvaluation of the currency, said BAK Economics, a research institute.

"The goods exporters in Switzerland are more resilient than in other countries," they wrote. "But on the other hand the resilience to currency effects of the service industry is lower."

Although Swiss unemployment rose slightly since the franc shock to an average rate of 3.2 percent in 2015 and 3.3 percent in 2016, it has since dropped back to 3.0 percent in September this year.

Still industrial companies have borne the brunt of the job cuts, the studies showed, with average industrial company reduced its workforce by 4.6 percent in the two years after the currency shock, wrote researchers from ETH Zurich, a university.

Companies remained cautious about increasing their staff despite the recent weakening of the franc, the researchers said.

Going forward, the sustained profit squeeze has meant many companies are investing less in their businesses, a trend which could damage their long term competitiveness, said one group of researchers from the BSS Economic Consultants and ETH.

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"Because the manufacturing sector is exposed to an above average extent, a long period of overvaluation could lead to an acceleration of deindustrialisation," they wrote.