GENEVA, Dec 26, 2010 (AFP) - Switzerland's strong currency is a boon for travelling Swiss bargain hunters or those surfing online shops abroad while its healthy economic indicators would be the envy of debt-plagued major economies.
Yet although the local business community is well worn to the refuge currency's lure in times of crisis, its nerve was being tested as the franc rose to new highs against the euro, pound and dollar at the end of 2010.
"It's not a nightmare but it's a risk factor for the dynamics of the Swiss economy," the head of economic policy at the Economy Ministry, Aymo Brunetti, told AFP.
The British pound has lost 40 percent of its value against the Swiss franc in the space of three years, while the euro touched new lows of 1.25 Swiss francs over the Christmas period after plunging nearly 15 percent in 2010.
Meanwhile the dollar has fallen by about 20 percent in a helter skelter ride since the financial crisis bit in 2008. By late December, the US currency was changing hands for less than one Swiss franc, compared to peaks of 1.80 in 2001.
The Swiss government's advisory panel of leading economists in December heralded a slowdown in ever more costly exports over the coming year, helping to pare down Switzerland's economic growth from a 2.7 percent in 2010 to 1.5 percent in 2011.
Even cattle farmers are suffering from the strong franc. Now deprived of subsidies, just 313 cattle were exported in 2010 compared with 5,779 last year, according to the Swiss farmers union (USP).
The 14.4-billion-Swiss-franc tourism industry is also casting an anxious eye on foreign exchange markets as it heads into its hallmark winter holiday season.
After wooing more Indian and Chinese tourists to Alpine pastures over the summer, tourism operators in Switzerland are pinning their hopes on heavy snowfall to temper the discouraging impact of the overheating currency on skiers from neighbouring countries.
"From the snow point of view we're off to an excellent start to the season, and that has a psychological impact," explained Veronique Kanel, a spokeswoman for the country's tourist authority Swiss Tourism.
But "in winter we're much more dependent on European tourists," she explained, pointing to a "euro effect."
Forecasting group BAK Basel predicted that foreign demand for overnight stays in Switzerland would drop by 2.2 percent this winter and by five percent on average for tourists from the eurozone. Cable car operators have already suffered a 5.2 percent drop in revenue this year.
Kanel said the number of British tourists heading for Swiss slopes fell by 18 percent in 2009 as the crisis dug deep. And those who did come were spending less.
With interest rates wedged at record lows and little leeway, the central bank has been watching for signs of deflation for more than a year.
"The fact that the current Swiss franc strength is proving particularly burdensome for the Swiss economy is due partly to the speed of the appreciation but also due to the uncertain economic climate," said Swiss National Bank governor Jean-Pierre Danthine.
Brunetti argued that some currency strength was normal with strong economic indicators and would benefit Swiss "well-being" in the longer term.
But consumer associations complain there has been little sign that local shoppers in the import-dependent economy can benefit from the flipside of the coin, lower prices.
Food and cars were among the goods where importers clung on to high margins, according to Michel Juvet of private bank Bordier.
"It's a pity because that's how you liven up an economy, by allowing consumers to supply themselves at less cost," Juvet said on Swiss radio RSR.
"Consumers must be encouraged to use Internet to push for price liberalisation," he added.
A return to calmer times is widely forecast in 2012. But the weekly Weltwoche newspaper reported that the central bank chief had warned ministers that a worst case scenario in Europe's sovereign debt crisis could bring the euro down to 0.5 Swiss francs.
One factory owner described that as "apocalyptic".
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