Thomas Jordan: The Swiss economy in a weakened world
Summary of a speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss
National Bank, at the General Meeting of the Federation of the Swiss Watch Industry,
Lausanne, 25 June 2015.
The complete speech can be found in French and German on the Swiss National Bank's website (www.snb.ch).
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Since summer 2007, the global economy has been in a state of near-permanent crisis. What
began as a subprime crisis triggered the banking and financial crisis, leading to a deep
recession. This culminated in the European debt crisis. The current strength of the Swiss
franc is a reflection of this global crisis, and highlights the franc's status as a safe haven,
which is especially pronounced in times of high global uncertainty.
The Swiss National Bank (SNB) has responded to the appreciation pressure by taking
exceptional measures. In terms of Switzerland's economic activity and the SNB's balance
sheet, no other country has seen its monetary policy so highly exposed. The decision to
discontinue the minimum exchange rate was prompted by renewed changes in international
conditions, particularly the growing divergence between the monetary policy stances of the
world's main currency blocks. Had the SNB delayed its decision, it would have lost control of
monetary policy and would have had to discontinue the minimum exchange rate at a later
date under much less favourable conditions.
The end of the minimum exchange rate has major repercussions for the Swiss economy, and
it was by no means an easy decision for the SNB. Yet this is not the first time that the Swiss
economy has had to react to shocks and changes in the international environment, and the
experience was often painful. The example of the watch industry shows that even a severe
crisis can be overcome. Unfortunately, this example is not readily transferable to other export
industries. Many companies currently find themselves compelled to seek cost reductions and
efficiency gains.
The economic outlook depends to a great extent on global economic developments. In its
latest monetary policy assessment, the SNB is projecting that momentum in the global
economy will pick up again. This should cushion the impact of the exchange rate shock
somewhat, and allow Switzerland to return to positive growth in the second half of the year.
While inflation has dropped well into negative territory, as things currently stand, a sustained
price decline - or, indeed, a deflationary spiral - is not to be expected.
Overall, the Swiss franc is currently significantly overvalued. Monetary policy is geared
towards this challenging set of circumstances, and is guided by the SNB's willingness to take
an active role in the foreign exchange market and apply negative interest rates. This
twopronged approach is designed to ease the upward pressure on the Swiss franc. However, in
the current climate there is, regrettably, no easy solution that would absorb all external
disruptions. We must accept these challenging economic conditions for the time being.
The SNB is aware that many companies find themselves in a difficult situation. And it has
great respect for the challenges facing Switzerland's businesses and their staff.