By John Revill
ZURICH (Reuters) - Switzerland's watch industry exports fell nearly 10 percent in May as watchmakers struggle with the effects of last year's Islamist attacks in Europe and a prolonged slowdown in Asia.
Watches are Switzerland's third-biggest export sector after pharmaceuticals and machinery. Like other manufacturers, the sector has also been hit by the strength of the Swiss franc, which makes exports more expensive.
Exports of timepieces fell 9.7 percent to 1.55 billion Swiss francs (1 billion pounds), according to data released by the Swiss customs office on Tuesday.
Overall this year Swiss watch exports, which are seen as a proxy for sales, have fallen by 9.5 percent.
Hong Kong and China, two of the world's largest markets for luxury watches made by companies such as Swatch (S:UHR), Richemont (S:CFR) and LVMH Moet Hennessy Louis Vuitton (PA:LVMH), have been particularly hard hit in the downturn.
Europe has also been struggling with reduced tourism numbers in the wake of deadly attacks last year, cutting visitors to important luxury shopping destinations including Paris.
Exports to France fell 18.4 percent in May, according to figures from the Federation of the Swiss Watch Industry.
The data gave little respite for Swiss watchmakers, who are battling raised inventory levels in Asia and a cautious mood among retailers, Thomas Chauvet, an analyst at Citi, said in a note to clients.
"Sell-in trends are clearly not improving," said Chauvet. "We remain concerned about continued disruption in Hong Kong, the Swiss watch industry's largest and most profitable market, and to a lesser extent mainland China."
He rates both Swatch and Richemont at neutral.
Swiss watch stocks fell in early trading. Swatch was 1.5 percent lower while Richemont dipped 0.8 percent.
In response to the export downturn, watchmakers have been cutting costs and production as the industry faces its biggest slowdown since 2009 when the global financial crisis reduced demand for luxury watches.
Last month, Geneva-based Richemont said it expected business to remain tough in the months ahead, as it reported a 1 percent fall in its constant sales for the 12 months ended March 31.
($1 = 0.9601 Swiss francs)