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 DevelopmentAlso in the 3rd quarter of 2022, Swiss foreign trade experienced a positive development: while exports increased by 1.3%, imports grew by 0.8%. However, the latter have lost their vigor since the middle of the year. Both imports and exports nevertheless posted a record quarterly result. The trade balance closes with a surplus of 8 billion francs. In short ⇑Watch exports: record quarterly result ⇑A tenth increase in exports to Asia ⇓Contraction of exports of machinery, electronics and metals ⇓Exports to Europe: first drop in two years (−1.7 billion francs) |
Swiss exports and imports, seasonally adjusted (in bn CHF), Q3 2022(see more posts on Switzerland Exports, Switzerland Imports, ) Source: newsd.admin.ch - Click to enlarge |
Global developmentIn Q3 2022, exports increased by 1.3% in seasonally adjusted terms (actual: +0.7%), to reach a record level of 67 billion francs. They thus confirm the positive trend displayed since the second quarter of 2020, although this is slowing down. With +0.8% (actual: −0.5%), imports recorded a ninth consecutive quarterly increase to reach a historic high of 58.9 billion francs. However, the trend has also run out of steam since the middle of the year. The trade balance surplus stood at CHF 8 billion. |
Switzerland Trade Balance, Q3 2022(see more posts on Switzerland Trade Balance, ) Source: investing.com - Click to enlarge |
Jump in exports to China and JapanExport growth in the third quarter of 2022 was mainly based on two sectors: chemicals and pharmaceuticals and watches. For chemicals and pharmaceuticals (+1.3% or +447 million francs), the increase was exclusively based on immunological products. Watch sales posted a quarterly high of 6.4 billion francs (+4.9% or +299 million). While sales of precision instruments increased slightly compared to the previous quarter, those of the machinery and electronics sector (−256 million), metals (−120 million) and vehicles (−113 million) bit the dust after have shone in previous quarters. From a geographical point of view, exports presented a heterogeneous evolution: deliveries to Asia jumped by 10.3% (+1.4 billion francs) while those to North America increased by 3 .2% (USA: +5.1%). Shipments to Europe fell by 4.4% or 1.7 billion. Italy increased by 637 million francs over a quarter (pharmaceuticals and energy products) while Spain, Germany and Slovenia suffered a cumulative drop of 1.2 billion francs. The rise in Asia was largely supported, notably by China (+19.3%) – after an ups and downs in previous quarters – and Japan (+15.5%). |
Swiss Exports per Sector, Q3 2022(see more posts on Switzerland Exports, ) Source: newsd.admin.ch - Click to enlarge |
Imports of passenger cars: highest level since the 4th quarter of 2020Of the twelve groups of goods, five progressed during the 3rd quarter of 2022. Imports of vehicles posted the strongest increase (+738 million francs); those of passenger cars (+327 million) amounted to 2.7 billion francs, a level more reached since the 4th quarter of 2020. Arrivals of energy products increased by 8.3% (actual: +0, 6%) or 418 million francs. Chemicals and pharmaceuticals and machinery and electronics grew by CHF 344 million and CHF 218 million respectively. Conversely, jewelery and jewelry (−556 million) and metals (−190 million) suffered a marked decline. Imports from North America (+4.1%) and Europe (+2.1%) were on the rise, confirming their upward trend of previous quarters. Those in Asia, on the other hand, suffered a decline of 1.8%, which was mainly rooted in Japan (−327 million francs). On the European continent, Germany, Slovenia, Ireland and Spain contributed more than one billion francs to growth. After their boom in the previous quarter, deliveries from Italy plunged by 254 million francs. |
Swiss Imports per Sector, Q3 2022(see more posts on Switzerland Imports, ) Source: newsd.admin.ch - Click to enlarge |
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