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UPDATE 1-Swiss trade surplus narrows to lowest since Frankenshock
May 23, 2017 / 11:56 AM / 7 months ago

UPDATE 1-Swiss trade surplus narrows to lowest since Frankenshock

* April trade surplus smallest since December 2014

* Q1 industrial orders fall 4.6 pct year on year

* Companies say strong franc still major problem (Recasts with economists, context, industry groups)

By John Revill

ZURICH, May 23 (Reuters) - Switzerland’s trade surplus narrowed to its lowest level since the Swiss franc’s surge rocked the country more than two years ago, as its industrial sector continued to struggle with the strong currency and pharmaceuticals exports slowed.

The merchandise trade surplus fell to 1.97 billion Swiss francs ($2.03 billion) in April, customs data showed on Tuesday, the lowest since December 2014.

In January 2015 the Swiss National Bank scrapped its long-standing limit on the franc versus the euro, sending the currency soaring and making Swiss exports more expensive.

“Switzerland is still recovering from the currency shock and it hasn’t completely recovered yet,” said Alexander Koch, head of macroeconomics at Bank Raiffeisen in Zurich.

Although Switzerland’s export-led economy did not go into a recession following “Frankenshock”, the effects have weighed on growth, which Koch said he expected to hold steady at 1.3 percent in 2017 before increasing to 1.5 percent in 2018.

The SNB has used negative interest rates and currency intervention to try to rein in the franc, which it calls significantly overvalued.

Swiss industry has borne the brunt of problems linked to the highly valued currency. Industrial production fell 1.3 percent in the first quarter, while new orders fell 4.6 percent, Federal Statistics Office data showed.

Nearly half of Swiss industrial companies may relocate operations abroad within the next three years and almost a quarter made an operating loss last year, the Swissmem mechanical and engineering lobby said this year.

“Industry is still in a recovery trend... but not a very dynamic one at the moment,” said Swissmem spokesman Ivo Zimmermann.

Although a Swissmem survey of members showed a 2.3 percent increase in orders during the first quarter of 2017, this was compared with a very weak quarter a year ago, Zimmermann said.

Strong gains in the pharmaceuticals and chemicals industry has supported exports in recent months, although the sector’s exports rose by only 0.3 percent in April.

Overall exports fell a real 3.8 percent in April as watch sector exports turned lower again after a rare rise in March.

Many companies are struggling to generate enough money to invest in new machinery and products, said Oliver Mueller, a director at Swissmechanic, which represents 1,400 manufacturers.

“A lot have increased productivity, cut costs and reduced investment to survive in the past two years, but the future is very uncertain,” he said.

“After two years of holding off buying equipment we are getting to the stage where companies need to start investing again.”

($1 = 0.9715 Swiss francs)

Additonal reporting by Joshua Franklin; Editing by Michael Shields

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