After a disappointing end to 2018, Swiss external trade started the year on a solid footing with exports rising 1.1% m/m (nominal, seasonally adjusted) to CHF 18.9 billion, thanks to a bounce back in demand from Asian countries (+9.3% m/m). Imports increased 3.4% to CHF 17.5 billion. The trade surplus printed at CHF 1.4 billion. In real terms, exports climbed 0.8% m/m, while imports were up 4.8%, the largest increase since July 2016 (+8.6% m/m). Exports to the European Union contracted 1.3% m/m, while those to North America (US and Canada) decreased 3.2%.
Overall, Swiss trade activity has continued to improve despite a strong Swiss franc. Exports kept expanding throughout 2018. Nevertheless, the trade surplus has continued to narrow due to the faster increase in imports.
Switzerland’s trade activity has become more volatile over the last six months as trade tensions took centre stage. In addition, Switzerland is exporting more and more to China (10% of total exports compared to less than 3% a decade ago) and to the US (12% compared to 8% a decade ago). By comparison, the share of exports that goes to countries from the European Union has never recovered from the Swiss franc appreciation following the GFC. Indeed, before the crisis more than 55% of total exports went to the EU, today it is less than 40%. Switzerland will have no choice but to develop good trade relationships with more and more countries, especially as the economy of its main trade partner is slowing down.
Sino-American talks repeat
Since trade talks have resumed at the end of January 2019, it seems that nothing much has advanced. Yet the new round of talks in Washington starting today should provide a clear breakthrough as the March 1 deadline nears, while investors remain highly optimistic on the matter.
Similarly to last week, both sides are expecting to address the softer structural issues relating to China’s agreement to purchase a significant amount of US goods while higher-level talks will be taking place on Thursday – Friday with China’s Vice Premier Liu He, US Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and other senior officials. Still, a memorandum of understanding remains the key objective that both countries are aiming for and which could trigger a 60-day postponement of US tariffs of 25% on USD 200 billion of US imports from China which would provide sufficient time to develop a detailed roadmap including key deadlines for resolving remaining issues (i.e. technology transfer and industrial subsidies).
When looking at recent data releases, it appears that China’s economy remains solid, with a rebound of current account balance of USD 54.6 billion (prior: USD 23.3 billion), higher than the 3-year average while the slowdown in inflation figures for January (+1.70%) confirms that a downside risk for the Chinese economy remains. Looking on the brighter side, the impressive rise in credit extension for the period of January suggests the stimulus engine has been turned on.
Currently trading at 6.7655, USD/CNY will be trading sideways as traders closely monitor the outcome of this week’s talks.
