(Bloomberg) -- Switzerland is feeling economic weakness spilling over from its key trading partner Germany, Swiss National Bank President Martin Schlegel said.
“When Germany has a cold, Switzerland has the flu,” Schlegel said at a Bundesbank event in Frankfurt on Saturday. “We are also feeling this certain weakness in industry in Germany. In other words, there is significantly less demand for Swiss industry.”
Germany is Switzerland’s largest trading partner among European Union members, making up about 20% of trade volume.
Schlegel’s remarks come after Switzerland reported a slowdown in growth as the strong franc weighed on industrial exports. Swiss Steel Group this month said it will cut hundreds of jobs due to weak foreign demand, particularly from the German automotive industry.
The franc has touched its highest level against the euro since 2015, adding to the SNB’s challenges ahead of its Dec. 12 interest rate decision. Having eased rates at every monetary policy meeting this year, the central bank has to strike a balance between having one of the world’s lowest rates, and slow inflation.
The strong currency, which makes imports cheaper, weighs on consumer-price growth, which has consistently undershot the SNB’s predictions. The next reading is due on Tuesday, with economists expecting that the gauge will slightly accelerate but stay below the forecast level for the fourth quarter.
For the SNB’s final rate decision of the year, another cut from the current 1% rate seems baked in after Schlegel has unusually openly said that further easing is “likely.” Typically, the SNB doesn’t give forward guidance.
Schlegel said Saturday that if they were in crisis the SNB would lower interest rates and look after the franc not getting too strong.
Schlegel, who took the helm of the central bank in October, has also repeatedly said that officials are ready to take borrowing costs below zero, if this becomes necessary to maintain price stability. Switzerland implemented negative rates for almost eight years until 2022.
(Updates with additional Schlegel comment in eighth paragraph. A previous version corrected Schlegel spelling in headline.)
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