Swiss producers face long slump
Swiss manufacturers are facing a long slump after demand collapsed at end-2008 while tough credit conditions and a strong Swiss franc are hurting the export-dependent sector, said Swissmem.
The industry association's warning against an outright credit crunch highlights the urgency for the Swiss National Bank (SNB) to get money flowing again between cash-rich smaller banks and the country's large banks, UBS and Credit Suisse.
"We expect that the crisis will last longer," Swissmem President Johann Schneider-Ammann said at a media conference in Zurich, adding the crisis was set to drag on well into 2010. The association represents the engineering, metal and electrical industry, which accounts for some nine per cent of gross domestic product and exports about 80 per cent of its production.
Schneider-Ammann said companies faced increasing difficulties in getting the necessary loans, highlighting the risk of a credit crunch. "I think it [a credit crunch] exists," he said.
It was key that banks overcame their reluctance to provide loans and started to co-operate among each other, he said. "What's the money good for if it stays with the banks," Schneider-Ammann said.
SNB board member Thomas Jordan said last week while credit conditions were set to tighten in a recession, Switzerland did not suffer from a general lack of credit supply.
But Swissmem Vice-President Hans Hess said especially larger loans were hard to get. Banks were not coming together for syndicated loans, he said. "The trust among banks is not there," he added.
Jordan said the central bank was working on deals using covered bonds to get liquidity to the large banks, UBS and Credit Suisse, which account for 35 per cent of domestic lending.
The tighter credit comes at a time when demand for Swiss engineering products is dwindling fast: foreign demand dropped some 34 per cent on the year in the final quarter of 2008, while domestic orders fell 18 per cent.
Sales for the sector shrank by 3.5 per cent on the year, the first decline after 13 quarters of growth.
Companies such as engineering group ABB have already said tighter credit conditions have made it harder for clients to finance projects. The rise of the Swiss franc added an extra burden to the export-dependent economy.
Follow Emirates 24|7 on Google News.