[ZURICH] Swiss alpine gear maker Mammut has made rope for mountain climbers in the land of the Matterhorn for 153 years, but after this year's surge in the franc currency it is moving production to the low-cost lowlands of the Czech Republic.
The company blames the Swiss National Bank's decision on Jan. 15 freeing the franc to rise against the euro for finally bringing climbing rope margins to the breaking point. "The recent strengthening of the Swiss franc increased the pressure to improve the business economics by relocating," said Christian Thalheimer, spokesman for Mammut parent Conzzeta, of the move that means 24 Swiss job cuts.
Mammut's shift illustrates why the franc's stubborn strength despite negative interest rates and SNB intervention has the government and business leaders fearing for Switzerland's perch at the peak of the world's most competitive economies.
Economy Minister Johann Schneider-Ammann said he was worried about a "creeping de-industrialisation", with small firms as well as big ones shipping jobs abroad.
The SNB precipitated the "frankenshock" with a sudden move to lift a three-year-old 1.20 franc per euro cap, which Chairman Thomas Jordan decided had become "unsustainable." While the franc has since retreated from a 30 per cent spike, it remains 10 per cent higher, at about 1.08 francs per euro.
That left skidmarks on Switzerland's economy, from companies like Mammut shuttering factories and offshoring production to Swiss shoppers flocking to suddenly cheaper Germany for deals.
Third-quarter economic growth stagnated and the government expects growth of less than 1 per cent for 2015. The manufacturing sector contracted in November. "Without growth momentum such as a marked depreciation of the franc, the downturn in industry looks set to last longer,"the Swiss Supply Managers Association wrote on Dec 1.
CROSS-BORDER SHOPPING SPREES
Swiss unemployment as measured by the International Labour Organization reached a four-year high of 4.9 per cent in the third quarter.
In the metals, electronics and machinery industry alone, 4,500 jobs were axed this year through July, as the franc makes exports of precision equipment more expensive for buyers in Europe. The industry accounts for about 9 per cent of Switzerland's 642 billion Swiss franc (S$882.4 billion) gross domestic product.
Holidays in the already pricey Swiss Alps look even less attractive to European visitors, hurting a tourism sector whose share of GDP has stagnated at 2.8 per cent since 2011.
Overnight stays in Swiss hotels through September fell 0.5 per cent, as more visitors from China, Gulf countries, India, South Korea and the United States couldn't offset plunging visits from Germans, Dutch, Russians, Belgians and Italians. "We'd have many, many more guests in Switzerland if it were cheaper here," said Urs Wagenseil, professor at Lucerne University of Applied Sciences and Arts' tourism institute.
Swiss retailers will miss out on some 11 billion francs in sales in 2015, Credit Suisse estimates, as thousands of Swiss residents make shopping pilgrimages to cheaper Germany or France. Swiss retail sales have fallen five of the six months through October, according to the Federal Office of Statistics.
Guido Hoegger regularly drives from his northern Swiss village to low-cost Constance, 45 minutes away in Germany. Cosmetics for his wife and disinfectant for his bathroom cost 40 per cent less, he said. Hearing aid batteries are a tenth of Swiss prices. Germany refunds its 19 per cent value added tax at the border.
A retired manager at a mill machinery company, Hoegger knows some of his neighbours say it is unpatriotic to shop abroad. "I don't feel guilty," Hoegger said. "We've been getting ripped off by high prices in Switzerland. And Swiss people's sensitivity to the exchange rate has only intensified since Jan. 15." Six years ago German couple Frank and Mandy Klein started a package reception service on Constance's main shopping street. Swiss residents have mail-order products from Europe shipped to the Kleins, who charge 5 euros to hold packages for a week. "Constance lives from shopping tourism, and lives very well," says Mandy Klein.
German farmers in the countryside have joined them in the package-reception business, using barns once used to store tractors to store packages from Amazon.com.
SHOPPING MILE, "IN THEORY"
Across the border in Switzerland, the neighbouring town of Kreuzlingen has empty storefronts and a nearly deserted main street. "The truth is, this is a shopping mile," said Nicole Esslinger, head of Kreuzlingen's tourist office. "But that's in theory only. Unfortunately." Bankruptcies have risen 8 per cent across Switzerland since January, said the consultancy Bisnode B&D, while new business filings fell 3 per cent in the first 10 months of 2015. "People are deciding now is not the time to open a business," said Bisnode's Christian Wanner.
Switzerland's economic and political stability have driven high demand for the franc in the past, and the SNB says the Swiss economy can benefit over the long term from the rigour imposed on business by the strong currency. "Companies are under constant pressure to cut costs and innovate and this strengthens the economy's adaptability, flexibility and productivity," Deputy Chairman Fritz Zurbruegg said in October.
Roche, the world's biggest cancer drug maker, has announced plans to spend 300 million francs on a new Swiss facility, saying it can make some drugs more efficiently at home than abroad, even if the franc dents results.
Swiss Tools, a tool and medical instrument maker near Lucerne whose products include vanilla-scented screwdrivers, said the strong currency forces firms to adapt.
Chief Executive Eva Jaisli said she has responded by raising prices in Europe while increasing the standard work week for her 150 workers by two hours without boosting pay. Exports had actually risen as a share of production since Jan. 15, she said.
In tourism, the Bernese Highlands surrounding Interlaken responded to a sharp decline in European visitors by luring more Middle Eastern and Asian travellers, more willing than French or Germans to pay a premium for Alpine scenery.
This summer, the region hosted a concert by Chinese popstar G.E.M. at 3,454 meters (11332 ft) atop the Jungfraujoch glacier.
Local officials and show sponsor Tag Heuer watches hope a broadcast in China boosts Swiss appeal. "We've seen a tremendous change of markets," Interlaken tourism head Stefan Otz said, predicting European countries like Germany will never again count among the top-five home countries of visitors to Interlaken.
REUTERS
