“The 30% appreciation of the Swiss franc against the dollar in the last year may have affirmed the alpine state’s reputation as an economic safe haven, but it has hurt the country’s multinational companies,” says the Financial Times. Take pharmaceuticals group Novartis. Earlier this month, it reported 9% growth in earnings per share in US dollar terms – but a 16% fall in francs.
The franc has risen so strongly that “it has even outperformed gold since the start of the year”, notes research consultancy Capital Economics. By now, “it looks significantly overvalued from a number of angles”. Yet it may keep rising. Debt fears in the eurozone, the US and Japan make Switzerland’s finances – public debt to GDP of 55% and a broadly balanced budget – look attractive. Swiss policymakers are not happy and currency intervention is a strong possibility. “But prior attempts in 2009 and 2010 did not prevent the franc from rising and we do not think a fresh try today would produce a different outcome.”
The runaway currency is causing problems elsewhere too, says the FT. Many borrowers in Hungary and Poland took out Swiss franc mortgages before 2008 because of the lower rates available. Now the stronger franc has hurt their ability to keep up on payments – and the problem only gets worse every time eurozone jitters send it soaring again.