September 27, 2012 / 11:24 AM / in 6 years

Swiss industrial firms weathering strong franc: UBS study

ZURICH (Reuters) - Export-oriented Swiss industrial companies have started to recover from the ill-effects of the strong Swiss franc and are doing better now than at the start of the year, a study showed, suggesting Switzerland may yet avoid a recession.

Large corporations were improving at a quicker pace than small and medium-sized businesses (SMEs), the survey by Swiss bank UBS found, with firms focused on the domestic market positioned best of all thanks to robust consumer demand.

Switzerland earns every second franc abroad, and the highly-valued currency has stifled exports, particularly to the euro zone. To prevent deflation and a recession, the central bank set a cap of 1.20 Swiss francs per euro a year ago.

“While a low-level turnaround may be evident in the industrial sector, where a growing number of companies are reporting improved figures, sectors focusing on the domestic market such as the construction and service sectors are benefiting from consistently high domestic demand,” it said in a statement on Thursday.

“With only a few exceptions, the large companies posted better figures than the SMEs,” it also said.

Domestic demand accounts for nearly 60 percent of annual output.

The machine and electrical (MEM) industry is one of the sectors particularly hit by the franc’s strength against the euro. Some firms have threatened to move production abroad to lower costs.

The economy contracted in the second quarter, fuelling fears that Switzerland — which for long seemed immune to the neighboring euro zone’s woes — might after all suffer a recession due to the strong franc.

And in a possible sign of more weakness in the third quarter, PMI manufacturing data posted its fifth contraction in a row in August.

The Swiss National Bank said earlier this month it expects growth of 1 percent this year.

Another sector of the Swiss economy to be hit is tourism, with hotels complaining of falling visitor numbers as holidaymakers choose cheaper destinations.

“The effects of the strong franc are still very evident in the tourism industry. However, the situation has stabilized at a low level,” the UBS survey said.

Reporting by Catherine Bosley; editing by Ron Askew

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