Fundamental Fun with Orbex: Swiss September Balance of Trade

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Although Switzerland is most known for its financial sector, exports are a major component of the economy. In 2016 the country’s exports amounted to $279 billion, or just under 42% of the economy. Not bad for a landlocked country composed mostly of glacier-covered mountains.

Given the importance of imports and exports to Switzerland’s economy, it’s not surprising that the monthly release of Balance of Trade data gets a lot of attention among Swissy traders. Here are some things you might want to keep in mind for today’s release.

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The central bank is interested

In most countries, the central bank sticks to a policy of maintaining price stability and largely doesn’t care about the relative exchange rate. Typically a higher or lower exchange rate is a political issue that is not under the purview of the central bank.

Switzerland, for several reasons, is the exception to this rule, and the Swiss National Bank (SNB) is quite outspoken when it comes to not only maintaining the stability of the currency but also of making sure it doesn’t impact exports. Because trade accounts for such a large portion of the economy, currency price fluctuations have a direct impact on the stability of the currency.

For years now, the SNB has been fretting over the franc’s relative strength and as a consequence its impact on prices for consumers through imports and the ability of Swiss exporters to sell. The bank has intervened in the past if exports were being impacted by the currency value, and so if the trade balance comes in widely outside of expectations, it could influence the currency beyond the typical analysis of the internal health of the economy and demand for the currency to cover export and import costs.

The latest data

For over three years, the balance of trade has come in comfortably above CHF 1 billion, with one single exception. That exception (the data for January was released on Feb 20) was followed by the longest decline in the Swissy so far this year:

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If the balance of trade data stays comfortably above the CHF 1 billion mark, that exception will remain just that; an exception. But if the recent uptick in the balance is ignored and there are more “exceptions,” they start to form a rule.

Last month’s surplus widened by 0.2% to CHF 1.4 billion with CHF 18.3 billion in exports.

Considerations

Switzerland exports a combination of high-technology and agricultural products, so the components are often just as important as the balance itself. Among those components is the export of watches, with Switzerland being the largest exporter in the world. That data is important enough to impact watchmaking companies and drag on the Zurich exchange, circuitously impacting the price of the franc.

Around 42% of Switzerland’s total exports go to its immediate neighbors, with most of it being high added-value products. Consequently, Switzerland is more vulnerable to economic fluctuations in its neighbor’s economies, and with poor economic data from Germany and Italy recently, some analysts are worried the trade balance might disappoint.

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