Swiss Balance of Payments and International Investment Position: Q4 2018 and whole 2018

Current Account

Whole 2018:

The current account surplus for 2018 was CHF 71 billion, CHF 26 billion more than in the previous year.

Primary Income:

Changes in primary income (labour and investment income) had the greatest impact: Whereas one year earlier an expenses surplus of CHF 9 billion was recorded, owing to exceptionally large expenses for direct investment receipts in 2017, in the year under review there was a receipts surplus amounting to CHF 3 billion. The receipts surplus in goods trade increased by CHF 7 billion to CHF 57 billion. This was attributable mainly to higher receipts from merchanting. The receipts surplus from trade in services rose by CHF 2 billion to CHF 20 billion. Secondary income (current transfers) registered a decrease in net expenses by CHF 4 billion to CHF 9 billion. In 2017, exceptionally high claims payments abroad by resident reinsurance companies had been recorded under this item.

Current Account Switzerland Q4 2018

Source: snb.ch - Click to enlarge

Financial Account 2018: US Companies repatriating their assets

Whole 2018:

Net financial account: +74 billion CHF, i.e. net capital outflows. (same value as the current account surpluse except the statistical different).

Gross volumes: reported transactions showed a net reduction in 2018, for both assets (CHF 49 billion) and liabilities (CHF 122 billion).

Other investment:

The main factor affecting the financial account was the impact of tax reforms under the Tax Cuts and Jobs Act in the US. In the context of the reforms, foreign-controlled finance and holding companies domiciled in Switzerland reduced their balance sheets in Switzerland.
This was reflected in the financial account through, first, a net reduction in assets (other investment), as companies scaled back their lending to non-residents; and, second, through a net reduction of liabilities (direct investment) because non-resident parent companies withdrew equity capital from companies in Switzerland.

However, the US tax reforms were not the only factor affecting the financial account; other transactions, too, had an impact.

Portfolio Investment:

On the assets side, like other investment, portfolio investment too recorded a net reduction in assets, as investors in Switzerland sold equity securities and debt securities issued by non-residents. In the case of portfolio investment, this was due to foreign investors selling Swiss shares. In the case of other investment, both the SNB and commercial banks reduced their liabilitiestowards non-residents.

Direct investment, by contrast, saw a net acquisition of assets because companies in Switzerland reinvested their earnings abroad, as well as granting loans to their subsidiaries. On the liabilities side, not only direct investment, but also other investment and portfolio investment registered a net reduction.

Switzerland Financial Account, Q4 2018

Extract from the Balance of Payments Q4 2018 Source: snb.ch - Click to enlarge

Switzerland’s International investment position

Whole 2018

In the international investment position, stocks of both assets and liabilities contracted in 2018. Assets declined year-on-year by CHF 88 billion to CHF 4,785 billion, and liabilities by CHF 181 billion to CHF 3,901 billion. In both cases, the decrease was partly a reflection of the transaction figures reported in the financial account (net reduction of assets/net reduction of liabilities), and partly the result of valuation losses from the sharply falling prices on global stock markets. Since liabilities decreased more markedly than assets, the net international investment position increased by CHF 93 billion to CHF 884 billion.

Assets

Stocks of assets declined by a total of CHF 9 billion to CHF 4,785 billion compared with the third quarter of 2018. This was mainly the result of valuation losses caused by sharply falling prices on international stock exchanges. The impact was felt in portfolio investment in particular and partly also in reserve assets. Stocks of portfolio investment fell by CHF 36 billion to CHF 1,322 billion. This decrease would have been even more pronounced were it not for the significant offsetting effect of statistical adjustments. These adjustments arose out of newly available information from reporting institutions. Stocks of reserve assets contracted by CHF 8 billion to CHF 776 billion. Direct investment assets increased by CHF 4 billion to CHF 1,725 billion as a result of transactions recorded in the financial account. Likewise, transactions were behind the CHF 22 billion increase in other investment to CHF 855 billion. Derivatives increased by CHF 8 billion to CHF 107 billion.

Liabilities

Stocks of liabilities contracted by CHF 79 billion to CHF 3,901 billion. This was mainly attributable to the substantial valuation losses under portfolio investment as a result of the sharply falling prices on the Swiss stock exchange. Stocks of portfolio investment fell by CHF 82 billion to CHF 1,070 billion. Direct investment liabilities decreased by CHF 19 billion to CHF 1,527 billion. However, in contrast to portfolio invest ment, this decrease was almost entirely transaction-based (net reduction of liabilities). Stocks of other investment rose by CHF 17 billion to CHF 1,196 billion, also driven by transactions recorded in the financial account. Derivatives increased by CHF 6 billion to CHF 108 billion.

Net international investment position

Since stocks of liabilities (down CHF 79 billion) showed a more pronounced decline than stocks of assets (down CHF 9 billion), the net international investment position rose by just under CHF 70 billion to CHF 884 billion.

Switzerland International Investment Position, Q4 2018

Switzerland International Investment Position - Q4 2018 Source: snb.ch - Click to enlarge