Courtesy of Mish.
Swiss Economy Winners and Losers
In reference to Rabbit Hole Intervention Fails: Wild Moves in Swiss Franc as Switzerland Abandons Euro Peg; Morals of the Story, reader “Grandaddy” a Swiss citizen living in the US, asks “How will removal of the peg affect the Swiss economy/outlook in the long run?“
Intuitively Obvious
It’s an interesting question because what seems intuitively obvious at first glance is not necessarily correct over the long haul or even the short haul.
For example, conventional wisdom is that Swiss exporters will be crucified and importers will benefit. Certainly there is an initial shock. But long-term, look at it this way: The price of materials used in exports (metals in watches and Swiss-made machinery) will get cheaper.
This may balance out over time, or not. One would have to look at input and output prices for every company to see.
Right now, Luxury Watch Makers Bemoan Move. Nonetheless, I have to wonder: Are top-end luxury items so ridiculously overpriced and so dependent on price-insensitive status buyers that the price change will not matter that much?
One widely recognized “big loser” is the tourism industry. For sure, hotel prices in Switzerland rose as much as 40% overnight compared to prices elsewhere.
But Swiss grocery shoppers buying food imports from France, Spain, and the rest of Europe benefit mightily.
Which of those is more important? I suggest the benefit to Swiss shoppers is more important, at least in the grand scheme of things. Moreover, those consumers will have more money to spend on other things … like restaurants, travel and hotels.
Net-net this is likely to be a loser for the tourism industry, but it may not be the total carnage most expect.
…
