A report from UBS Media Releases:
“Poor business activity in the retail sector dragged the UBS consumption indicator down despite an increase in new car registrations. The strong franc dampened consumer willingness to spend, although it also increased the purchasing power of Swiss residents.
The UBS consumption indicator dropped 0.49 points in August. This represents the largest monthly decrease in nine years. At its current level of 0.79, the UBS consumption indicator is only marginally higher than during the previous two recessions in 2002/03 and 2008/09. Very poor business activity in the retail sector and deteriorating consumer sentiment were the main causes of the decline. Only new car registrations, which continue to be robust, escaped the downward trend (August: +9.1% year-on-year).
The sudden drop in the UBS consumption indicator in August is attributable at least in part to the appreciation of the Swiss franc: the euro – franc exchange rate approached 1:1 during August. This extreme overvaluation may well have unnerved consumers and prompted them to cut some of their spending. Setting an exchange rate floor has noticeably reduced the uncertainty surrounding the exchange rate situation, and it is hoped that this will also lift consumer sentiment somewhat. In principle the strong franc is a positive development for consumers, because the reduction in prices that goes hand-in-hand with such an appreciation means consumers’ purchasing power has increased. This is evident not least in the high number of new car registrations, which is likely to have been brought on by the exchange rate discount and an increase in direct imports. “
