The last two years have been challenging for Switzerland’s exports of luxury goods, especially for the watch making industry. Xi Jinping’s anti-corruption crusade along with Hong Kong’s three month pro-democracy contests has definitely slowed sales of Swiss Watches in China and this new currency shock will is unlikely to help improve the situation.
Last week the Swiss National Bank unexpectedly dropped its minimum exchange rate policy. This policy has kept the euro from dropping below 1.2 Swiss and had been introduced in 2011. The Swiss franc has seen a big increase in value and many speculations arise as to how this will affect Chinese consumers, who have been among the biggest fans of Swiss brands in recent years.
However the impact of this policy shift on Swiss brands is likely to be limited over the medium term. Chinese consumers appetite for Swiss brand and products such as watches and chocolates should remain strong despite higher price as Chinese shoppers have long shown that price itself is rarely an obstacle for items on which they place a quality premium.
The two industries that are most likely to be affected by the currency shock are Chinese tourism to Switzerland and young Chinese registering for high-priced private schools in Switzerland. Both areas have been growing steadily over the recent years but the policy change undertook by the Swiss National Bank might come and affect this trend.