The most recent Economist Big Mac index places Switzerland at the top with the world’s most expensive burgers. This tongue in cheek analysis compares the relative strength of national currencies by comparing the price of a Big Mac around the world and it suggests that the Swiss franc is 42.4% overvalued. The only other currency to come close is the Norwegian Kroner which is deemed 17.9% overvalued. By the same measure the Euro is 15.4% undervalued. For Swiss companies exporting to the euro zone the Swiss franc’s overvaluation combined with the Euro’s undervaluation add up to a significant challenge.
Fortunately burgers are not high on the list of Swiss exports. In 2014 Swiss exports increased by 3.5% and the KOF Swiss Economic Institute predicts that Swiss exports will increase 1.5% in 2015. In June the Economist explained this Swiss economic resilience. Firstly, Switzerland can increase the prices of much of what it sells. Pharmaceuticals, banking services and pricey watches can accommodate price increases. Certain products known as Veblen goods become even more desirable when made more expensive. Secondly, Switzerland now exports less to the euro zone. Over the last 10 years the share of its goods exports going there dropped from 55% to 44%.
The concluding figures in the Economist’s article are truly impressive. Over the past 30 years the Swiss franc’s trade weighted exchange rate has climbed 130%. Despite this head wind Swiss exports over the same period grew 200% after adjusting for inflation. Perhaps a continually strengthening currency has forced the Swiss economy into high margin industries where there is scope to raise prices and out of low margin commodities.
None of this means there is no pain however. The tourism sector for example is hurting. KOF predicts a 0.6% fall in overnight stays in 2015. It also expects Swiss unemployment to nudge up from 3.5% to 3.6% in 2016.
Nevertheless, the overall picture is impressive.