There is no doubt that Switzerland's economy will suffer in the short-term after the Swiss National Bank's (SNB) surprise move to abandon its currency cap against the euro, but it's strong enough to survive, the chief executive of Swiss insurer Zurich told CNBC.
"Switzerland is going to suffer in the short-term, without any doubt, because it's been a very drastic move, a very abrupt move and the businesses didn't have the time to adjust to that in this short period of time," Martin Senn told CNBC on the sidelines of the World Economic Forum in Davos, Switzerland, on Wednesday.
The SNB shocked markets last week when it ended its three-year-old currency cap that pegged the Swiss franc to the euro. Chaos ensued after the announcement and the Swiss franc soared by 28 percent against the euro and 25 percent against the U.S. dollar.
Calling the move a "shock", Senn believed nevertheless that the Swiss had no chance but to remove the cap now, particularly as speculation mounts that the European Central Bank could announce a full-scale bond-buying program when it meets on Thursday.
Senn told CNBC that although the move could damage the economy short-term, it would encourage companies to become more efficient, while maintaining the integrity of the Swiss brand, known for its quality.
"In the longer-term, it means that one has to look for more efficiency and focus on the strengths of the country – the country and the exports have always been driven by quality products and not the price so it's important to stay on top of the curve and see where it ends up."
"Short term then (it's) not very good and long-term I'm not as pessimistic because the strength of Switzerland is not disappearing."
Challenging outlook
Senn said that the insurance business faced headwinds if the European Central Bank launched a full-scale quantitative easing (QE) program which would push the yield, or interest paid, on bonds lower, having an impact on the industry's investment strategy.
"The implications (of QE) are naturally fairly challenging for the industry as a whole -- for the insurance industry for pension funds, for anyone that has a liability–driven investment approach simply because interest rates continue to go lower and the forecast now is for interest rates to stay for quite some time and that's a challenge because a big part of the income is through fixed income, that is through bonds," he said.
