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Strong franc prompts unemployment fears

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Strong franc prompts unemployment fears
13:27 CEST+02:00

A leading Swiss official has expressed fears that companies will begin massive lay-offs and relocate production to more competitive countries unless the country's soaring currency can be reeled back in.

The head of the Directorate of Labour, Serge Gaillard, said on Wednesday that the unemployment rate will likely increase for as long as the euro stays below 1.30 francs, newspaper Le Temps reports. 

Although he did not say so explicitly, Gaillard hinted that the Swiss National Bank (SNB) could lend a hand by establishing a lower floor for the franc-euro exchange rate, currently pegged at 1.20 francs. In his view, the national currency is “still over-valued in relation to the euro.”

Switzerland enjoys close to full employment, with less than three percent of the population registered as jobless. As Gaillard reminded listeners during a conference at the fifth Exhibition for Human Resource Management in Geneva, the unemployment rate is almost the same as before the 2008 crisis.

Despite the current optimism, government forecasts indicate a rise in the next 18 months that will leave the unemployment rate at an average of 3.4 percent in 2012, with a maximum peak of 3.7. The reasons, as Gaillard explained, are a loss of competitiveness for export companies due to the high Swiss franc and the parlous state of the global economy.

“It is as if prices and salaries will have gone up by 20 percent in a year and a half in comparison with our European neighbours,” said Gaillard. After reducing prices and cutting their profit margins, companies may start now to lay off workers or relocate them, in order to be more competitive, he added.

In fact, mass dismissals have already started. The chemical company Huntsman announced last week that it would eliminate as many as 500 jobs in Basel through the closure of production facilities and the withdrawal of administrative positions.

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