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 DevelopmentAfter stagnating in previous months, exports rose in May 2018. Seasonally adjusted exports rose 0.9% in one month. Imports were more dynamic, at + 3.8%. Chemistry-pharma and the vehicle sector generated 90% of growth in both traffic directions. The trade balance closed with a surplus of 2.3 billion francs. In short |
Swiss exports and imports, seasonally adjusted (in bn CHF), May 2018(see more posts on Switzerland Exports, Switzerland Imports, ) Source: newsd.admin.ch - Click to enlarge |
Overall evolutionIn May 2018 and after stagnating in previous months, seasonally adjusted exports increased 0.9% (actual: -0.0%). Following the slowdown since the beginning of the year, imports posted growth of 3.8% (real: + 3.1%). The trade balance closed with a surplus of 2255 million francs. |
Switzerland Trade Balance, May 2018(see more posts on Switzerland Trade Balance, ) Source: investing.com - Click to enlarge |
ExportsPositive trend in machinery and electronics exports and watchmakingIn May 2018, exports grew by 172 million francs. This was based on the flagship sector, chemicals and pharmaceuticals (+110 million francs, + 1.3%), as well as vehicles (+52 million francs). In the former, only medicines decreased (-146 million francs) while the other segments gained ground. Exports of chemistry-pharma have been flat since the end of 2017, evolving at a high level, however. The other major commodity groups have somewhat tarnished the May picture. The machinery and electronics (-0.4%) and watchmaking (-0.3%) sectors have almost evolved to the same level as the previous month; however, they have a clear positive trend. While precision instruments have fallen by 1.4%, they are moving to a high level by then end of 2017.
Geographically, in May 2018, the rise in exports took root in Europe (+ 2.8%), which is also on the upward trend. Neighboring countries have largely contributed to this increase. Austria, France and Italy grew between 7 and 17%. The United Kingdom (-4.0%) accuses him, a negative evolution since mid-2017. The trend of sales to Asia is upward, although they lost 1.1% in May. China (-5.8%), Hong Kong and South Korea particularly weighed on this result; China, the first Asian outlet, still has a positive trend. Exports to North America decreased by 5.9% (USA: -216 million francs). |
Swiss Exports per Sector Dec 2017 vs. May 2018(see more posts on Switzerland Export, Switzerland Exports by Sector, ) Source: newsd.admin.ch - Click to enlarge |
ImportsAsian imports leaded by China and the United Arab Emirates As in the previous month, the rise in imports (+634 million francs) was based on the chemicals-pharmaceuticals and vehicles sectors (+125 million). Chemicals and pharmaceuticals (+ 11.5%) continued their volatile evolution in May. The vehicles are also experiencing a sawtooth: after falling in April, their imports inflated by 125 million francs. If the second largest group at the entrance, machinery and electronics, fell slightly (-0.9%), it remained on its positive trend started in 2017. Conversely, metals have decreased by 1.3 % over one month, thus continuing their negative trend since their record end of 2017. Among other commodities, energy products (+49 million francs, real, -0.4%) and watchmaking (+ 7.9% ) have On the continents, growth was based on imports from Europe (+ 3.2%) and North America (+ 19.5%, USA: + CHF 119 million). Despite this increase, the North American continent remains in a negative spiral. As for Europe, it is gradually progressing. In May 2018, France (+ 11.1%), Ireland (+317 million) and Belgium (+101 million) shone. Arrivals from Asia show a slightly positive trend in 2018; in May, they fell by 2.2%, led by the United Arab Emirates (-134 million) and China (-5.3%). |
Swiss Imports per Sector Dec 2017 vs. May 2018(see more posts on Switzerland Imports, Switzerland Imports by Sector, ) Source: newsd.admin.ch - Click to enlarge |
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