Strong Swiss franc may not be that bad for Swiss exporters

Anirudh Shingal (WTI) together with Dario Fauceglia (Zurich University of Applied Sciences) and Martin Wermelinger (University of St. Gallen) suggested in a recent article in the widely-read Economics blog VoxEU that Swiss exporting companies may not be as adversely affected by unfavourable exchange rates as perceived. By analysing highly-disaggregated import and export data from Switzerland’s top 37 trading partners for 15 exporting sectors over 2004-2011, they show that on average 75 percent of the exchange rate changes on import prices have been passed through to the Swiss companies within three months. Particularly in times of a rising Swiss franc, this pass-through effect has helped Swiss exporters to counteract the loss of profit margin with cheaper imported inputs. 

These results are thought-provoking against the background of the general notion of the disadvantages of an appreciated franc for the Swiss export industry. This is because an appreciation of the franc also leads to higher profit margins through the import channel and these import price changes are not necessarily passed on to foreign consumers. Moreover, in 2011 the Swiss National Bank intervened to assuage Swiss exporters of the adverse effects of the Franc’s appreciation. Similar results leading to an exporter not exiting an export market, would render the Swiss National Bank’s intervention questionable and investigating this is the subject of the authors’ next paper.