Swiss government delays action over strong franc

The Swiss government met in Bern for an extraordinary session on Monday as ministers try to restrain the Swiss franc. 

Finance minister Johann Scheider-Ammann said he shared the view of the National Bank (SNB) that the franc was considerably overvalued and that an intervention in the financial markets may be necessary. 

“Further measures are being assessed. They have to be taken at the right moment and not just in the short-term,” Schneider-Ammann told the Tages Anzeiger.

He referred to measures already taken like compensation for reduced working hours and the stated goal to finalise further Fair Trade Agreements with countries like China, India and Russia.

As yet, no concrete decision has been made and details on any potential measures are not expected until Tuesday or later. The government will meet on August 17th and in the coming weeks to address the situation.

Switzerland is currently performing well internationally and compared to its neighbouring countries. But today the NZZ newspaper reported that the Swiss stock exchange fell clearly into negative territory with major indices making heavy losses.

What Schneider-Ammann said in his five-minute meeting with the media on Monday evening did little to calm Swiss politicians as they are waiting for days on a decisive act from the Bundesrat or at least a clear signal.

Business expert Pirmin Bischof of the Christian Democratic People’s Party (CVP) showed his disappointment in Scheider-Ammann: “I miss the strong communicative opinion of the Bundesrat,” he told the Tages Anzeiger newspaper.

Social Democratic Party (SP) minister, Susanne Leutenegger-Oberholzer, spoke to the Tages Anzeiger of a “communication politics, which is leading Switzerland into a black autumn and winter. Neither the National Bank nor the Bundesrat seem to be taking the crisis seriously.”

Leader of the Green Party, Ueli Leuenberger, had a similar view: “The Bundesrat should not leave people alone with their fears about the workplace and their savings.”

Representatives of the SVP have no problem with the restraint of the government: “Room for manoeuvre in Switzerland is tight,” said member of the Swiss National Council and Trade Commission president Hansruedi Wandfluh: “If he came out with statements without substantial content, then he would make a laughing stock out of himself.”

His colleague and bank expert Hans Kaufmann sees it similarly: “The financial markets are not stupid and are not dazzled by well-meaning statements.”  


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How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”