Swiss Franc: Strong Franc Puts Pressure on Exports – Commerzbank

Commerzbank analyst Michael Pfister's latest analysis shows that the sustained strength of the Swiss franc is putting significant pressure on Switzerland's export sector. He notes that the growth in Switzerland's overall export market share since 2019 has disappeared once precious metals trading is excluded, highlighting deep structural problems in core industries such as pharmaceuticals, chemicals, and machinery. However, the watch industry remains resilient, indicating a clear divergence in the impact of franc appreciation across different sectors.

**Structural Erosion of Export Competitiveness**

Pfister's analysis reveals that the apparent boom in Swiss exports has been largely supported by precious metals trade. Once this factor is stripped out, the performance of traditional advantage industries is concerning. The pharmaceutical and chemical sectors face weak demand and cost disadvantages, further amplified in a strong domestic currency environment. The machinery sector is also under pressure, with its price-sensitive products gradually losing market share internationally. This structural weakness means that even if the franc exchange rate corrects in the future, these industries will find it increasingly difficult to regain competitiveness.

**Watch Industry Shows Unique Resilience**

In contrast to most manufacturing sectors, Switzerland's watch industry has demonstrated strong resilience during the franc appreciation cycle. This is mainly attributed to its luxury goods nature, where consumers are relatively less price-sensitive, and brand premiums and scarcity partially offset the negative impact of exchange rate fluctuations. The industry's resilience also reflects that Switzerland's export sector is not monolithic, with high-end positioned segments better able to adapt to a strong domestic currency environment.

**Policy Dilemma Intensifies Industry Pressure**

The USD/CHF pair is currently trading around 0.80376, with the franc at multi-year highs. According to market sources, the Swiss National Bank faces a dilemma in responding to the currency's strength: on one hand, it needs to curb franc appreciation to protect exports, while on the other, large-scale intervention risks triggering the US designating it as a currency manipulator. During Trump's first term, Switzerland was previously placed on that list for market intervention. This constrained policy space means the export sector is unlikely to receive effective relief from the central bank in the near term.