CH: Merchandise Trade Balance

Highlights
The trade balance returned a CHF2.68 billion surplus in October, down sharply from a minimally smaller revised CHF4.33 billion in September.

The deterioration reflected mainly a 6.7 percent annual jump in imports although exports (minus 1.1 percent) also contributed. The real trade position similarly worsened markedly with export volumes slumping 6.1 percent on the year after a 5.1 percent rise in September and imports gaining a further 3.7 percent following a 2.7 percent increase last time.

Seasonally adjusted the picture was no better with exports declining a monthly 4.6 percent in nominal terms versus a 3.1 percent advance in imports. At minus 4.7 percent and 2.8 percent respectively, the volume data moved the same way.

The October data are disappointingly weak but not wholly unexpected after surprising strength in September. The trend in exports is still rising slightly while imports are closer to flat. Even so, without some improvement in November/December, net exports will struggle to offer any help to real GDP growth this quarter. The SNB will be all the more determined to ensure that the CHF does not make further gains.

Definition
The merchandise trade balance measures the difference between the total value of Swiss merchandise exports and imports. The focus is on the balance of trade in goods, excluding precious metals, gemstones, works of art and antiques. This is provided in unadjusted and workday adjusted measures for cash and volume. Seasonally adjusted monthly changes are also available for total exports and imports.

Description
Changes in the level of imports and exports along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect the value of the Swiss franc in the foreign exchange market. Switzerland's major trading partners include Germany, France, Italy and the United States. While Switzerland still exports large amounts of traditional products such as chocolate and watches, more than half of Swiss exports are in mechanical and electrical engineering and chemicals today. A positive trade balance indicates a trade surplus while a negative balance represents a trade deficit. Trade surpluses indicate that foreigners are buying more Swiss goods, which are typically paid for in Swiss Francs. This translates into greater demand for the currency and upward pressure on the value of the Franc. However, if the balance is a deficit, Swiss consumers are buying goods from trading partners which translates into higher demand for foreign currencies placing downward pressure on the value of the Franc.