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Swiss watchmakers cut prices as exports fall due to strength of Franc

The strong Swiss franc took its toll on exports of Swiss watches in June and prompted firms to slash prices to defend foreign market share, indicating the Swiss National Bank is unlikely to raise rates any time soon.

Exports to the European Union dropped by a real 14.6 percent, trade data released on Thursday showed. Since January, the franc has risen more than 6 percent against the euro, repeatedly hitting record peaks, as investors worried about the single currency debt crisis. It has also jumped against the dollar on the back of U.S. budget battles.

"The strong franc is threatening growth of the Swiss economy," said VP Bank Chief Economist Joerg Zeuner. "Should the franc stay strong or even rise further the high proportion of exports makes the economy susceptible to a marked slowdown in growth."

Exports from Switzerland rose by a real 3.1 percent in June to 15.797 billion Swiss francs from a year earlier, the Federal Customs Office said. But the absolute level of exports has been slipping since February, a sign of the currency’s impact.

Meanwhile, Economy Minister Johann Schneider-Ammann said the situation caused by the weak euro was "alarming" and joblessness could rise sharply. To hang onto their clients abroad, Swiss firms have responded to the strong exchange rate by slashing foreign prices. In June prices overall declined by 10.9 percent, the data showed.

For the past year or so rising demand in Asian markets has helped to offset slackness elsewhere in the world. In June that trend continued, with sales of Swiss watches, particularly popular in China and Hong Kong, rising by a real 15.9 percent, although less sharply than in months past.

But even in these segments merchants made sacrifices: watch prices declined by 4.9 percent, while the price of jewellery fell 10.2 percent. Shares in Swatch Group were down 0.4 percent and Richemont fell 0.6 percent at 0928 GMT, broadly in line with a 0.4 percent fall in the Swiss blue-chip index.

adapted from Reuters

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