Exports have risen at the same pace as the currency in Switzerland for the past two years, but Coutts & Co thinks the trend is unsustainable and that the strong Swiss franc will hit exports and local equities this year.

The UK private bank says that the 15 per cent increase in exports in the Alpine state over the two previous years is thanks to the low starting point after the financial downturn in 2008 and the collapse of world trade that followed.

Swiss merchandise trade exports in June were worth about SFr16.8 billion (about $22 billion), down almost 8 per cent from SFr19.2 billion at the same time last year, the Swiss government reported on its website at the end of July. The economy earns roughly half of its corporate earnings from the export industry.

Coutts takes the view that exports will fall for the rest of the year and, if the Swiss franc stays near recent highs for another 12 months, it suggests that exports will only start to grow again in the first quarter of next year.

Weak export growth is reflected in disappointing local equities. Coutts highlights that Swiss equities have underperformed other markets in local currency terms recently; the Swiss Market Index has underperformed the Stoxx Europe 600 by 7.9 per cent in local terms.

The Swiss franc hit private banking in Q2

At the end of last week, private banking at Credit Suisse reported a fall in pre-tax income of 4 per cent in the second quarter of 2011 from a year ago. At the same time, the bank announced that it will cut 4 per cent of all jobs across all its divisions, reportedly equating to about 2,000 positions. In its results, the Zurich-listed bank said that private banking was affected – like rivals UBS, EFG and Julius Baer – by the strengthening of the Swiss franc against the euro and dollar. Excluding the foreign exchange impact, income before taxes actually increased by 20 per cent in the second quarter and net revenues increased by SFr100 million or 3 per cent over the same period a year ago.

Before publishing its results, Credit Suisse carried out a survey about the economic outlook in Switzerland, which corroborates the gloomy outlook shared by Coutts. Fewer than three per cent of the 60 financial experts in the study said they think the country’s economy will improve in the next six months and more than 60 per cent expect it to decline. Better news was that none thought that the Swiss economy was in a bad state. The respondents also said they expect the Swiss franc to tip over to the weaker side again.