February 2, 2012 / 8:31 AM / 9 years ago

UPDATE 2-Swiss exports fall in Dec as strong franc weighs

* Swiss exports down 1.6 pct in real terms in Dec

* EU is biggest trading partner, trade with EU falls

* Watches buck trend, rise 21 pct in Dec (Adds details on watch exports)

ZURICH, Feb 2 (Reuters) - Exports from Switzerland fell in December, hurt by turmoil in the euro zone which slashed demand for Swiss goods and drove the franc currency to unfavorably strong levels as investors looked for a safe place to park their money.

Despite the central bank’s move to cap the Swiss currency’s rise at 1.20 per euro, the franc remains almost 30 percent stronger than it was before the financial crisis erupted in 2008, pushing up the price paid by foreign buyers for Swiss goods such as chemicals and watches.

Economists have warned growth will slow considerably as exports suffer, with some even expecting the economy to fall into recession.

Swiss exports fell by a real 1.6 percent in December to 15.630 billion Swiss francs, the Federal Customs Office said. Exports to the European Union, Switzerland’s biggest trading partner, dropped 4.2 percent, as the debt crisis curbed demand.

“Over the next few months, the strong Swiss franc will continue to weigh on export growth. As for demand from abroad, it will depend on what happens in the euro zone,” said Credit Suisse economist Maxime Botteron.

Overall last year, exports rose only 2 percent, the report showed, down from 7 percent in 2010 as companies cut prices to take account of the strong franc in a bid to preserve volumes.

The bright spot in December was shipments of watches, which rose 21 percent to 1.9 billion francs.

Buoyant Asian demand for pricey timepieces, as well as Chinese tourists flocking to European boutiques, have so far helped companies such as Richemont sail relatively unscathed through the latest bout of economic turmoil.

But recent comments from some in the sector have suggested this picture may be changing.

Watch shipments climbed 19.2 percent in 2011 from a year earlier, the Federation of the Swiss Watch Industry said. Yet even in this sector firms saw the franc straining sales prices.

Although the watch industry was the star performer among sectors in 2011, the chemical industry suffered a decline, as did precision instruments.

The tough exchange rate ate into margins at Swiss specialty chemicals maker Clariant in 2011 and drugs industry supplier Lonza saw its profit last year plunge by a third due in part to the strong franc.

December’s weak export figure is only the latest in a slew of downbeat economic news, including the PMI reading for January , painting a gloomy picture for the months ahead.

With the economic outlook somewhat dour, some politicians have called on the SNB to target an even weaker Swiss franc to shield the economy better by making the country’s exports cheaper.

Yet those calls have receded in recent weeks, following the resignation of SNB Chairman Philipp Hildebrand. Moreover, at its most recent policy review in December, the SNB toned down its warnings about the risks of deflation, even though it does see falling prices this year.

“At this point we expect the euro-Swiss floor to remain at 1.20 as the deflationary pressures don’t justify a hike from the SNB,” Botteron said.

The Swiss National Bank expects growth of just 0.5 percent this year. Some economists even forecast a mild recession in the first half of 2012. (Reporting by Catherine Bosley; editing by Anna Willard)

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