Prosperous Recession

Except perhaps for gold, no monetary asset has quite the mystique of the Swiss franc. Since 1970, it has gained 74% in value against the dollar, more than 130% against the British pound and Italian lira, and even 23% compared with the almighty West German mark. The franc's strength is usually attributed to Switzerland's social and political stability and its reputation as a haven for funds of all sorts. Recently, the value of the Swiss franc has also been boosted by some economic successes that are the envy of most other nations.

Switzerland's inflation rate over the past year, for example, has been only 1.2%. Since January, consumer prices have actually declined. In spite of widespread fears that the rise in the franc would hurt exports by making them more expensive to foreign buyers, the country has amassed its first trade surplus in memory: $103 million in the first five months of this year. And unemployment stands at all of .9%.

How have the Swiss done it? Partly --and paradoxically--by going through a recession that, according to some measures, was the worst in any industrialized nation. Switzerland's real output of goods and services last year dropped 7%,* compared with declines of 2% in the U.S. and 2.5% in the nine-nation European Community. This year real gross national product is expected to rise about 2% in Switzerland, v. 6% or more in the U.S., West Germany and France. Bankruptcies have increased, and some of the country's largest companies, including Alusuisse (aluminum) and Societe Suisse pour 1'Industrie Horlogere (watches), ended last year in the red.

The Swiss kept the jobless rate so low by concentrating layoffs among migrant workers. Some 110,000 migrants, mostly Italians, went home last year. "To put it crudely, our unemployment is being felt in Italy," says Hans Mast, economic adviser to Credit Suisse, a big bank. Switzerland's strengthened trade position, in the view of government financial officials, is a fluke attributable to the recession. Exports fell 5.4% in 1975, but imports dropped 20%. In order to keep their markets, many exporters had to cut prices, thus reducing their profits.

The Gap. The strength of the franc has helped the fight against inflation by making imports cheaper. Labor unions have also showed restraint in wage demands. The recession helped to hold prices down, also, by lowering demand.

While the rise in the franc has given Switzerland a reputation among tourists for high prices, the gap is gradually being narrowed by the absence of inflation. Vacationers are pleasantly surprised to find that the prices of hotels and ski-lift tickets have stayed the same from one season to the next. Last month Swiss newspapers carried full-page ads that seemed unreal to foreigners: because of the recent rise in the franc, the prices of some Japanese cars were being cut by anywhere from $80 to $400.

Despite the clear benefits of a strong currency, the Swiss government is convinced that the country's export industries cannot absorb any further rise in the franc for the time being. But stopping the climb is not easy. A barrage of measures taken so far has not been very effective. In the first five months of this year, the National Bank had to buy $3.4 billion in foreign currencies (mostly dollars) to hold the franc down. National Bank President Fritz Leutwiler has traveled extensively in the Middle East to ask oil producers not to place surpluses in Swiss currency. Yet whether these moves can take the glitter off the Swiss franc is still an open question.

* Even so, a recent study by the Union Bank of Switzerland shows that the Swiss now enjoy the highest gross national product per capita of any industrialized nation: $8,740. Sweden, Norway and Denmark follow; the U.S. is fourth at $7,020.

This file is automatically generated by a robot program, so viewer discretion is required.