Despite the challenges of a strong currency, the Swiss economy continues to perform well, with specialized sectors driving strong industrial growth. This resilience stands in contrast to the stagnation seen in many neighboring countries.
Swiss industry is not afraid of a strong franc
In his final press appearance as head of the Swiss National Bank, Thomas Jordan warned that the Swiss franc was likely to appreciate against the franc regardless of the SNB's actions. To survive, Swiss exporters must continue to cut costs to remain competitive with foreign competitors.
This is hurting the morale of Swiss companies. Swissmem, the machinery, equipment and metalworking trade group, has been warning for the past few months about the negative impact of the Swiss franc's appreciation on exports. Now, the watch industry is also voicing concerns and calling on the Swiss National Bank to intervene with foreign exchange reserves.
Nevertheless, the numbers point to a reality that continues to impress the world. Despite globalization and the continued appreciation of the franc against most currencies, the Swiss economy is holding up. Remember in the 70s it cost 10 to buy one and 4.5 francs to buy one.
In fact, as the graph below shows, industrial production in Switzerland has increased by almost 40% since 2011, even though the franc has appreciated by 25% against the euro. Are neighboring countries benefiting from a weaker euro? Not at all. In fact, industrial production has barely increased in the last 15 years. In Germany, there has been a further decline since 2011. The contrast with Switzerland is striking.
industrial production
(Index rescaled to 100 on January 1, 2011)
Why is Switzerland outperforming the euro area?
Simply put, this divergence can be mainly explained by the presence in Switzerland of several important sectors with very high added value that still stand out from competition from emerging economies. These include pharmaceuticals, watchmaking, and chemicals.
Although industrial production in Switzerland has increased by a total of 39.6% since 2011, production in many sectors has declined over this period as market share has been lost to new and more competitive producers. . For example, production decreased in the textile (-27%), electrical equipment (-11%), metal products (-12%) and machinery (-16%) sectors.
However, the three high-value sectors mentioned above recorded significant production increases during this period, driving up the value of the Commonwealth's industrial output: pharmaceuticals (+189%), watchmaking (+37%) and chemicals (+67%). I did.
While Swiss industry is boosted by these three sectors, industry in the euro area has not been able to rely similarly on the superior, less competitive, high-value-added sectors.
Industrial production in the euro area, particularly in Germany and Italy, the two largest industries in the monetary union, has stagnated or even declined since 2011 due to increased competition from emerging producers.
Switzerland versus the rest of the world
To broaden the discussion and perspective, here is the same graph (on a 100 basis as of January 1, 2011) for industrial production including all major economies.
industrial production
(Index rescaled to 100 on January 1, 2011)
It is important to note the following points:
- Unsurprisingly, China has experienced the strongest growth in industrial production, although the rate of increase has slowed in recent years.
- Industrial production in the US and UK has recently returned to pre-COVID-19 levels. However, growth over the past 15 years has been weak, barely outpacing the downward trend in Europe.
- Some emerging economies (such as India and Mexico) have fared well, especially in recent years, thanks to the phenomenon of “friendshoring” and “nearshoring.” South Korea's performance in recent years is even more mixed.
The trend of deindustrialization in developed countries, especially in Europe and the United States, is clear. “Reindustrialization” efforts (such as the Trump and Harris plans in the US and the Draghi report in Europe) will require major investments and major policy changes.
China is no longer the “only factory in the world,” although it remains the largest factory, with more than 30% of the world's industrial output produced there. India, supported by domestic growth and economic openness to trade, and Mexico, benefiting from US reshoring and friend-shoring, are experiencing strong industrial growth.
Switzerland is a notable exception, with its highly specialized, high value-added sectors able to maintain its industrial base even as increased competition from emerging countries reduces the production of lower value-added products. It's done.
