The merchandise trade surplus narrowed from a slightly smaller revised CHF6.12 billion in June to CHF4.89 billion in July but was well above the CHF3.00 billion posted a year ago. The yearly improvement reflected a 17.4 percent increase in exports, up from a 2.6 percent fall at quarter-end, that easily more than offset a 9.6 percent rise in imports after a 9.9 percent drop.

Seasonally adjusted, the surplus stood at CHF4.10 billion, down from June's smaller revised CHF4.78 billion and a 3-month low. Exports decreased 2.7 percent on the month, their second fall in the last three months, while imports edged up 0.3 percent for their first increase since April. The real trade balance also deteriorated as export volumes were down 1.8 percent and imports grew 0.1 percent.

Net export volumes have now subtracted from real GDP growth in each of the last three months which, with domestic demand sluggish, warns of a probably soft outturn for the current quarter.

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 seasonally adjusted measures for cash and volume.

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.