Business World

Monday 18 November 2019

Swiss economy's not going like clockwork as consumers head to border for bargains

A man plays a traditional alphorn as a huge Swiss national flag is seen on the landmark Mount Saentis for the country's recent national day
A man plays a traditional alphorn as a huge Swiss national flag is seen on the landmark Mount Saentis for the country's recent national day

Catherine Bosley

In the Swiss lakeside town of Kreuzlingen, the strength of the franc is leaving its mark.

The currency's advance this year means locals in the border town are crossing into Germany to shop in greater numbers, hurting domestic retailers.

That's compounding the impact of the exchange rate on the economy, which probably suffered a recession in the first half.

"It's a problem - hotels, restaurants and stores are having a tough time," said Nicole Esslinger, head of the tourism board in the town on the shore of Lake Constance.

"People in Kreuzlingen have always gone to the closest store, even if it is across the border. But now it's on a different scale."

Towns dotted along the northern edge of the country are paying the price of the Swiss National Bank's January decision to let the franc float freely against the euro. With exports undermined by the currency, Switzerland's economy is heading for its weakest performance in six years, with growth forecast to lag even the euro area.

Consumer prices are forecast to fall the most in six decades this year. Manufacturing activity unexpectedly declined last month, new data shows.

While Lake Constance separates a good part of Switzerland and Germany, there's no natural boundary between Kreuzlingen and the German town of Constance, with just small border posts along the roads demarcating the line between countries. Schengen rules allow passport-free travel between the two, though customs laws apply.

Swiss shoppers have a history of buying everyday goods abroad. According to a study by market research firm GfK, they spent about 10 billion francs (€9.4bn) outside Switzerland in 2013 on everything from detergent to sunglasses.

Switzerland's residents are allowed to import 300 francs of goods per person a day without paying duty and are also entitled to recoup VAT from Germany.

"I usually go on weekends," Judit Pretli, a 43-year-old local who works in a hospital, said of her shopping trips to Germany. "Some things like hairspray and other personal care products are cheaper there."

Judging by price-comparison website, a basket of 54 typical personal care products such as L'Oreal hair gel and Beiersdorf's Nivea sunscreen cost 70pc more in Switzerland than in Germany. Clothing is 43pc more expensive in Switzerland, it showed.

In response to so-called shopping tourism, drugstore chain Mueller has temporarily cut prices at its Kreuzlingen branch to make them cheaper than those in Germany.

Even so, reclaiming VAT on articles purchased at Mueller's Constance branches makes shopping in Germany a better deal.

"I've seen the prices here and it's mad," said Alex (53), a mechanical engineer from Waldenbuch, near Stuttgart, standing in front of a shopping centre. "It's definitely cheaper in Germany."

Still, economists estimate that Switzerland's recession - its first in six years - will be short lived. Analysts surveyed by Bloomberg expect output to expand in the third quarter -- albeit by a meager 0.1pc. (Bloomberg)

Irish Independent