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Swiss Trade Surplus Shrinks in October

Summary:
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 increases, while REER assumes constant productivity in comparison to trade partners. On the other side, a rising trade surplus may also be caused by a higher savings rate while the trade partners decided to spend more. 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. 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”. Charts from the Swiss customs data release (in French). Exports and Imports YoY Development In October 2016,  Swiss exports were down 5.6% (in real terms: – 10.4%) against the previous year. Imports rose by 1.8%YoY (in real terms: -1%). Exports fell under the rising trend line, while imports slightly rose. In short ▲ For the first time more than one 1 billion CHF of exports to China ▲ record exports to the USA and of pharmaceuticals ▼ Another big decline in watch and jewelry exports ▼ Weakening of machines and electronics.

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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 increases, while REER assumes constant productivity in comparison to trade partners.

On the other side, a rising trade surplus may also be caused by a higher savings rate while the trade partners decided to spend more. 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.

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”.

Charts from the Swiss customs data release (in French).

Exports and Imports YoY Development

In October 2016,  Swiss exports were down 5.6% (in real terms: – 10.4%) against the previous year. Imports rose by 1.8%YoY (in real terms: -1%).

Exports fell under the rising trend line, while imports slightly rose.

In short

▲ For the first time more than one 1 billion CHF of exports to China

▲ record exports to the USA and of pharmaceuticals

▼ Another big decline in watch and jewelry exports

▼ Weakening of machines and electronics.

Swiss exports and imports, seasonally adjusted (in bn CHF)

Swiss Trade Surplus Shrinks in October

. Source: Swiss Customs - Click to enlarge

The trade surplus came short of expectations. Analysts had expected a stronger trade surplus.

Country Findings for Exports:

Asia: Down 7% against last October

Europe: Up 1%

United States: +6% (driven by pharmaceuticals)

Switzerland Trade Balance, October 2016

(see more posts on Switzerland Trade Balance, )
Swiss Trade Surplus Shrinks in October

. Source: Investing.com - Click to enlarge

Sector Findings for Exports:

Top-Down from the French data release:

  • The Jewelry industry had losses of 25% against last year.
  • 12% less exports of watches
  • 5% less machines and electronics exported.

The winner were

  • Once again chemicals and pharmaceuticals with +6.8%.
  • Textiles and clothing with +19.2%.
 

Swiss Exports per Sector October 2016 vs. 2015

(see more posts on Switzerland Exports, )
Swiss Trade Surplus Shrinks in October

Swiss Exports per Sector October 2016 vs. 2015 Source: Swiss Customs - Click to enlarge

George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on SeekingAlpha.com and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.

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