The Swiss economy leaves the franc shock behind

Not only traders got caught by surprise on January 15, 2015 when the SNB decided to give up its cap on EURCHF at 1.20, but moreover the Swiss economy itself.


After the Swiss GDP shrank by 0.4% in the first quarter of 2015 due to the concerns resulting from this decision, the Swiss economy grew by 0.6% in Q2 2016 and year on year by 2.0%. We have now reached the same level as before the event in January 2015.

Positive trend since the beginning of 2016

Since the beginning of 2016 we can already report a continuous improvement of Swiss economic strength. According to the State Secretariat for Economic Affairs SECO, this is mostly due to the positive impetus from foreign trade as well as from government consumption. There is a downside, however. A slightly lower level of investments in construction and equipment and also a stagnating private consumption indicate that people have no confidence in their own strength yet.

The SNB still plays the central role

But the SNB continues to play the decisive role in this equation. Although there are more and more indications from European countries that the massive ECB interventions fail to reach the desired objectives, the SNB manages to successfully hold the EUR/CHF exchange rate within a trading range of CHF 1.08 to 1.10 per euro. However, caution is required. After plenty of disappointing figures coming from Europe the ECB will meet again on 8. September. However if Draghi doesn’t pick up the well-known bazooka the effect on the Euro should be rather limited and temporary. An extension of the QE program in time has already been factored partially into prices. On 15 September the SNB will be able to react. Yet a further reduction of interest rates seems rather unlikely. The pension funds and insurance companies are already suffering greatly due to the negative interest rates. The SNB at present seems to consider clandestine interventions on the foreign exchange markets as the most effective instrument to hold the exchange rate at an acceptable level. We will gain further insights concerning this tomorrow, when we will be given the most current report on the level of foreign reserves. A new record high should be expected.

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