Francs are worth more than euros – who still wants to go to Switzerland – with these high costs?
Who still wants to go to Switzerland – with these high costs?
Swiss cities have suddenly become much more expensive for many foreign workers. The main reason: the strong franc.
When it comes to quality of life Swiss cities always do well. Nevertheless, many foreigners should think twice before working and living in Switzerland. According to a recent study by management consultancy Mercer, the cost of living for expats in this country is very high.
In the ranking of the most expensive cities in the world for foreign workers, Switzerland has made a leap forward. For the first time, Zurich, Geneva, Basel and Bern occupy places 2 to 5. Only Hong Kong is even more expensive.
The management consultancy Mercer recorded the prices of two hundred products and services in over four hundred cities. Housing costs were taken into account, as were prices for transportation services, food, household goods, clothing and entertainment.
The reasons for the high ranking of many Asian cities are inflation and strong currencies, the analysts explain in their report. Swiss cities have become more expensive in an international comparison. A year ago, Zurich was still in 5th place in the same survey. And Geneva has moved up from 8th to 3rd place within a year.
This makes Switzerland particularly unattractive for employees who are not directly employed by a Swiss company. Unless they get lucky local bonuses from their employer. That could at least prevent foreign companies and organizations from expanding their workforce in Switzerland.
The euro slips below parity
But why are the Swiss cities growing so strongly – especially since inflation in Switzerland is far lower than in the euro area or in the USA, for example? The main reason is the expensive franc. This has appreciated significantly against other currencies such as the euro. Since Wednesday, one franc has even been worth more than one euro.
Since the geopolitical situation has been unstable and the stock markets have been under pressure, many investors have fled to a “safe haven”. In mid-June, the Swiss National Bank (SNB) also surprisingly lowered the key interest rate from -0.75 to -0.25 percent in order to take action against rising inflation. This strengthens the franc even more.
The National Bank is thus completing a monetary policy change of course. After more than a decade of intervening in the FX markets to weaken the franc, SNB President Thomas Jordan said he was willing to sell FX should the franc depreciate. Since 2009, the SNB has bought foreign exchange worth over CHF 775 billion, inflating its balance sheet to around CHF 1,000 billion.
The strong franc is helping the National Bank in its fight against inflation
A weaker Swiss franc would further drive inflation through more expensive imports. The SNB wants to avoid that. The strong franc helps in the fight against inflation because it makes imports cheaper. According to Credit Suisse estimates, a 10 percent fall in the euro exchange rate reduces inflation in Switzerland by half a percentage point.
According to Maxime Botteron, economist at Credit Suisse, the euro exchange rate would have to drop significantly to around 80 centimes per euro for inflation to fall directly below the 2 percent target of the National Bank.
As soon as interest rates are back in positive territory, the SNB could start reducing foreign exchange reserves, Botteron expects. However, they do not have to sell government bonds or stocks to do this. On the one hand, it has cash worth around 100 billion Swiss francs, mainly in euros. On the other hand, it records inflows from interest and dividend payments on its securities averaging around CHF 3 billion, which it could hold as cash instead of reinvesting. After all, they could not replace some of the maturing bonds. She also has a lot of leeway before she sells any securities.
Matthew born is an editor and data journalist in the business department. He has been working as a journalist since 2000. Mathias Born has a degree in media studies and a degree in data journalism.
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@thisssArmin Mueller is the author of the Tamedia editorial team. From 2018 to January 2022 he was a member of the Tamedia editorial board. Before that, he worked for “SonntagsZeitung”, “Handelzeitung” and “CASH”, among others.
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