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 than in 2015 and early 2016. In March the trade surplus got bigger again, still shy of the records in 2016.
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 DevelopmentAfter the dynamism registered until May 2018, Swiss foreign trade has been stalled since. In August and after seasonal adjustment, exports stagnated at a high level and imports fell by 1.1%. The trade balance has a surplus of 1.4 billion francs. ▼ Jewelery and passenger cars pull imports into red numbers ▼ Chemistry-pharma: Negative trend in both imports and exports ▲ Exports of precision instruments on an upward curve |
Swiss exports and imports, seasonally adjusted (in bn CHF), August 2018(see more posts on Switzerland Exports, Switzerland Imports, ) Source: Swiss Customs - Click to enlarge |
Overall EvolutionIn August 2018, seasonally adjusted exports stagnated in one month (real: + 0.6%). After posting an uptrend between January and May, however, they have peaked at a high level since then. Imports fell by 1.1% from the previous month (real: -2.8%), to show a similar trend to exports over the last six months. The surplus in the trade balance reached 1408 million francs. |
Switzerland Trade Balance, August 2018(see more posts on Switzerland Trade Balance, ) Source: Investing.com - Click to enlarge |
ExportsAsian and North American demand slumpExports by merchandise group during August were uneven. Those of precision instruments (+ 1.6%) and of the other goods group (vehicles: +38 million francs) have increased. Conversely, the machinery and electronics sector stagnated while chemical and pharmaceutical products declined. These also reveal a negative trend over the last six months. Precision instruments, on the other hand, are clearly oriented towards the top in the last few months. Among the three main markets, Europe (+ 2.1%) stood out in August, the other two experiencing a decline in exports. The Old Continent, however, fell sharply the previous month (base effect). France and the Netherlands shone, up respectively by +93 and +53 million francs. Asian demand (-1.7%) has generally weakened over the last six months. In August, the decline in Japan (-157 million francs) and Hong Kong (-83 million) weighed on the result; these two partners had however bondile previous month. In North America (-2.1%), deliveries to the US plunged 53 million francs in a month. Swiss exports to the North American continent have been flat since the beginning of the year. |
Swiss Exports per Sector August 2018 vs. 2017(see more posts on Switzerland Exports, Switzerland Exports by Sector, ) Exports by commodity group: Nominal changes adjusted for working days compared with August 2017 Source: Swiss Customs - Click to enlarge |
ImportsImports of French origin fall freeWith the exception of chemicals and pharmaceuticals (+265 million francs) and the machinery and electronics sector (+21 million), all sectors saw their imports shrink. Pursuing its volatile evolution and despite an increase in August, chemistry-pharma has been on a downward slope since the beginning of the year. Jewelery (-166 million francs, other goods) and the vehicle sector (-97 million) were the most affected. In the latter, and after the rush of previous months, passenger cars dropped by 22.8% in August. Metals (-44 million francs) also fell, registering their sixth decline of the year. With the exception of North America (+ 9.5%, USA: + 195 million francs, which has been positive since the beginning of 2018), imports from all continents have decreased. With Asia (-235 million francs), the drop in arrivals from the United Arab Emirates (-984 million francs, jewelery) pulled the result down. In Europe (-197 million francs), France suffered particularly (-370 million francs, vehicles and jewelery), showing its largest contraction since 2000. |
Swiss Imports per Sector August 2018 vs. 2017(see more posts on Switzerland Imports, Switzerland Imports by Sector, ) Imports by commodity group: Nominal changes adjusted for working days compared with August 2017 Source: Swiss Customs - Click to enlarge |
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