Why is the Swiss franc getting stronger and how will it affect me?
After dodging recession and avoiding cantonal deficits, a new forecast from UBS has predicted that as the Swiss economy grows, so too will the value of the franc. The exchange rate between the euro and the franc has dropped in recent weeks, with the bank now predicting that Switzerland will have to deal with having a more valuable currency in the long term. Here's why and how the value of the franc will impact expats and internationals.
Swiss franc more valuable than the euro in long term
"We see the euro rate below one franc in the long term," UBS chief economist Daniel Kalt told Watson. After the exchange rate fell from parity with the euro in 2022, the bank now forecasts that the exchange rate will stabilise at 0,97 rappen (cents) to the euro in 2023 - the rate was 1,15 francs to the euro in May 2018, and 1,88 francs in May 1992.
Others, like Raiffeisenbank, are even more sceptical, with a spokesperson telling Watson that the euro is now 7 percent less valuable than it was at the start of 2022, adding that they see a “high probability that the euro exchange rate will continue to fall below parity over time…We have a forecast of 95 rappen for the year.” The bank concluded that if their predictions become a reality, a more valuable franc will become a permanent feature of the economic landscape.
Why is the Swiss franc increasing in value?
Kalt noted that the main reason for the Swiss franc’s strength is inflation. Despite recording record-breaking inflation in 2022 - leading to a dramatic drop in purchasing power - the inflation rate in Switzerland remains less than half that of the European Union. In April, the inflation rate in Switzerland was 2,6 percent, compared with a 7 percent average in the eurozone.
The UBS expert added that if this imbalance continues, the differences between the currencies will become more stark. “It will be crucial how quickly the central banks in the eurozone and Switzerland get inflation under control," he concluded, although Christine Lagarde, President of the European Central Bank, recently hinted that inflation in the EU is far from over and that interest rates are set to rise further as inflation in Switzerland falls.
How will a strong Swiss franc impact me?
Like most things with economics, a strong Swiss franc is a double-edged sword. On the one hand, people with Swiss salaries will enjoy a financial advantage compared to workers in Germany, the Netherlands and other eurozone nations, which will make the shopping trip over the border to Germany or France even more lucrative. It will also benefit those who have invested money in Swiss businesses or hold accounts in francs.
In contrast, the higher value of the franc will make it more challenging for entrepreneurs and international companies to export Swiss products into the EU. The higher franc will also make Switzerland less attractive as a tourist destination for Europeans, heavily impacting mountain railways, ski resorts, hotels and restaurants across the alpine nation. Finally, new expats or internationals that want to transfer money from overseas to accounts in Switzerland will see less favourable exchange rates.