by George Dorgan
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We do not like Purchasing Power or Real Effective Exchange Rate (REER) as measurement for currencies. For us, the trade balance decides if a currency is overvalued. Only the trade balance can express productivity gains, while the REER assumes constant productivity in comparison to trade partners.
Who has read Michael Pettis, knows that a rising trade surplus may also be caused by a higher savings rate while the trade partners decided to spend more. This is partially true.
Recently Europeans started to increase their savings rate, while Americans reduced it. This has led to a rising trade and current surplus for the Europeans.
But also to a massive Swiss trade surplus with the United States, that lifted Switzerland on the U.S. currency manipulation watch list.
To control the trade balance against this “savings effect”, economists may look at imports. When imports are rising at the same pace as GDP or consumption, then there is no such “savings effect”.
After the record trade surpluses, the Swiss economy may have turned around: consumption and imports are finally rising more.
Swiss National Bank wants to keep non-profitable sectors alive
Swiss exports are moving more and more toward higher value sectors: away from watches, jewelry and manufacturing towards chemicals and pharmaceuticals. With currency interventions, the SNB is trying to keep sectors alive, that would not survive without interventions.
At the same time, importers keep the currency gains of imported goods and return little to the consumer. This tendency is accentuated by the SNB, that makes the franc weaker.
Texts and Charts from the Swiss customs data release (translated from French).
Exports and Imports YoY DevelopmentIn recent months, both exports and Swiss imports have been apathetic. On April 1, 2018, and after seasonal adjustment, they respectively stagnated and fell by 3.4%. The chemistry-pharma has sealed the result in both directions of the traffic. The trade balance closed with a surplus of 2.8 billion francs. ▲ Watch exports: highest level since 3 years |
Swiss exports and imports, seasonally adjusted (in bn CHF), April 2018(see more posts on Switzerland Exports, Switzerland Imports, ) Source: Swiss Customs - Click to enlarge |
Overall evolutionIn April 2018, seasonally adjusted exports moved to the (high) level of the previous month (-0.2%, real: + 0.0%) to stagnate over the last three months. Imports fell 3.4% (real: -0.4%) and have been flat since December. The trade balance is closing with a surplus of 2799 million francs. |
Switzerland Trade Balance, April 2018(see more posts on Switzerland Trade Balance, ) Source: Investing.com - Click to enlarge |
ExportsChemistry-pharma offsets growth in other sectorsAs in the previous two months, the stagnation of exports in April is explained by the decline in chemicals and pharmaceuticals (-3.6%), the heavy weight at the exit. Among them, active ingredients (-251 million francs) and raw materials and basic (-118 million) suffered a setback. On the other hand, all the other important groups progressed during the period under review. In the machinery and electronics sector (+ 3.6%), the upward trend that began in mid 2016 continued. Watch exports (+ 2.1%) achieved all their brilliance, registering their highest level since August 2015. Among other goods, jewelery hit hard with a rise of 13.6% (+117 million francs ). Exports strengthened in two of the three major markets. After three months of hesitation, Asia, driven by Hong Kong and the Middle East, climbed 4.4% to a record high. In North America (+ 2.2%), the US played the spearhead (+133 million francs). Shipments, on the other hand, stagnated towards Europe, reflecting the steady trend recorded since the beginning of the year. In April, turnover increased between 2.9 and 8.3% with Italy, France and Germany, while it plunged two-fifths with Austria (-322 million francs) pharma products). In comparison with previous months, exports to this gold quartet, however, show a negative trend. |
Swiss Exports per Sector November 2017 vs. April 2018(see more posts on Switzerland Export, Switzerland Exports by Sector, ) Source: Swiss Customs - Click to enlarge |
ImportsChemistry-pharma and vehicles lead importsIn April 2018, chemicals and pharmaceuticals as well as the vehicle sector pulled the imports into the red numbers. The former continued their volatile evolution (-16.6%, -774 million francs). As for the second (-17.2%), they suffered from the contraction of aircraft arrivals (-312 million francs). While the machinery and electronics sector, which is second in importance, stagnated in April (-0.2%), it is still evolving on an upward trend since the end of 2016. Other commodity groups gained ground. Entries in jewelery were up 17.7% (+211 million francs) and doubled in one year. Metals as well as textiles, clothing and footwear have kept their pace of growth, the latter crossing for the first time the billion francs mark. From a geographic point of view, the decline in imports in April took hold in Europe (-4.2%) and in North America (USA: -324 million francs). On the Old Continent, France (-6.5%), Ireland (-319 million francs) and the United Kingdom led the year. Despite this slowdown, European imports continue to evolve at a high level since the beginning of the year. In the continuation of the preceding months, North America contracted by a third over a month. Arrivals from Asiese are accelerated by 6.2% (+214 million francs) and thus continue their momentum. This boom rests particularly on the United Arab Emirates (+352 million francs) and China, which confirm their dynamism. |
Swiss Imports per Sector November 2017 vs. April 2018(see more posts on Switzerland Imports, Switzerland Imports by Sector, ) Source: Swiss Customs - Click to enlarge |
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