TheÂ Swiss franc is weakening on Tuesday as the latest manufacturing figures highlighted an industry that is in a sharp decline. The franc’s slide was exacerbated by the central bankâs foreign exchange interventions to prevent currency appreciation. With Switzerland reopening in the aftermath of the coronavirus pandemic, could the economy rebound in the second half of 2020 and elevate the franc even more?
TheÂ procure.ch manufacturing purchasing managersâ index (PMI) declined toÂ 40.7 inÂ April, down from 43.7 inÂ theÂ previous month â anything below 50 indicates aÂ contraction. But theÂ PMI reading beat theÂ median estimate ofÂ 34.6. That said, there were sharp contractions inÂ output, new orders, employment, stocks purchased, andÂ prices. These were theÂ largest declines since May 2009.
Claude Maurer, anÂ economist atÂ Credit Suisse, said inÂ aÂ statement:
TheÂ situation is going toÂ be difficult forÂ many companies andÂ we are forecasting aÂ recession forÂ this year. TheÂ big problem forÂ companies is delivery times. TheÂ suppliers are not operating fully, transport is difficult andÂ border controls are more complicated.
We think theÂ readings will improve inÂ theÂ next few months asÂ theÂ restrictions are relaxed, but itâs from aÂ very low base. There will be aÂ recovery, but IÂ donât think we will be going back toÂ theÂ good old days.
Last week, theÂ KOF Economic Institute warned that theÂ economy is inÂ aÂ crisis, andÂ theÂ export-led economy could crater byÂ 6.7% this year. If accurate, it would be theÂ worst recession since 1975.
According toÂ theÂ Swiss Federal Statistical Office, theÂ consumer price index (CPI) tumbled 0.4% inÂ April following two consecutive months ofÂ 0.1% gains. TheÂ CPI slumped atÂ anÂ annualized rate ofÂ 1.1%.
While some data may be better than expected andÂ theÂ nation is reopening, consumer confidence collapsed toÂ -39.30 inÂ theÂ second quarter ofÂ 2020. This is down from -7 points inÂ theÂ first quarter.
OnÂ Monday, theÂ Swiss National Bank (SNB) maintained its string ofÂ currency interventions asÂ policymakers try toÂ place aÂ ceiling onÂ theÂ safe-haven assetâs surge. New SNB data reveals that total sight deposits climbed byÂ roughly $20 billion toÂ $688.63 billion inÂ one week.
Instead ofÂ slashing interest rates deeper into subzero territory, analysts anticipate greater foreign exchange interventions asÂ theÂ central bankâs primary tool toÂ fight currency appreciation.
TheÂ USD/CHF currency pair rose 0.83% toÂ 0.9731, from anÂ opening ofÂ 0.9649, atÂ 17:16 GMT onÂ Tuesday. TheÂ EUR/CHF advanced 0.2% toÂ 1.0547, from anÂ opening ofÂ 1.0528.
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