balance of Payment Swiss

Topics: International economics, Current account, Macroeconomics Pages: 8 (929 words) Published: December 4, 2014


Swiss Balance Of Payment - Review Analysis
Naragerel Norovjav
MBA 614 International Finance – 2014 Fall Semester
Virginia International University
Dr. Zelalem Chala

SWISS BALANCE OF PAYMENT
Current Account and Capital Account (2003-2012)
Introduction
This review will analyze Balance of Payment (BOP) of Switzerland for past 10 years. Switzerland is ranked 1st for a “free” economic country which has high rate of Trade Freedom, Investment Freedom and Financial Freedom in European region countries. And it is economy and foreign trade is continuously growing for a past decades. Therefore, I assume that Swiss BOP is the interesting issue to be analyzed. Firstly, this review will provide information about current account, one of the main parts of BOP, including how its trade in goods and services has evolved over time. It also will include Swiss foreign trade competitiveness in the world. Secondly, it will examine relationship between the Swiss net foreign asset position and its International Investment income account. Thirdly, It will discuss about whether there is current account surplus or deficit.

Current Account:
The balance of payments contains different accounts. For each account the balance between inflows and outflows is measured. The components of the current account are accounts such as goods (the trade balance for goods) and services (trade balance for services), but also incomes from investments, labor and transfer payments of residents. Swiss companies are extremely competitive in world markets. Swiss foreign trade balance has been continuously increased over last 10 years. Figure1. Swiss Foreign Trade  in CHF million

Import
Export
Balance
2004
136'987
146'312
9'326
2005
149'094
156'977
7'883
2006
165'410
177'475
12'065
2007
183'578
197'533
13'955
2008
186'884
206'330
19'447
2009
160'187
180'534
20'347
2010
173'991
193'480
19'489
2011
174'388
197'907
23'519
2012
176'781
200'612
23'831
2013
177'642
201'213
23'571
Switzerland's main trading partners are European Union members. And the biggest partner is Germany. Currently, 59.7% of exports went to EU countries, and 78% of the imports came from EU states. Swiss economic policy has always been based on free trade, with low import duties and virtually no import quotas. Figure 2. Swiss Current account (2003-2012)

Source: SNB
As shown in Figure 2, Service account and Investment Income account are major determining component of Swiss current account rather than Goods account and Current transfers. We can see there is a significant drop for the Investment income account, which impacted by financial crisis in 2008-2009. The heavy losses by banks’ foreign subsidiaries were the main reason for this decline. This led to a sharp decline in the current account surplus from CHF 52 billion to CHF 13 billion. This is the first time that Net Investment account was negative, but Swiss current account has been always surplus since current account were first complied (1947). For the other components, which are net goods, services and current transfer account have been amounted constantly over years and there have been no significant difference for last 10 years, Financial Crisis in 2008-2009 did not impact on the trade in Goods and Services in Switzerland.

Capital/Financial Account:
Financial account components: Direct Investment, Portfolio Investment, Derivatives and Structured Products, Other Investment and Net Bank Lending. Net direct investments represents outflows (direct investment of Swiss multinationals > Foreign investment in Switzerland). These outflows were good for the central bank, but after financial crisis, net Direct Investment was far smaller than in 2005 or 2006. Figure 3 shows that different expansion of d Direct Investment abroad before and after the financial crisis....

References: Bekaert, G., Hodrick, R (2012). International Financial Management, 2 ed.
Prentice Hall, New york
snb.com/en. (2014). Swiss Balance of Payment (annual report). Retrieved August 15, 2013; from http://www.snb.ch/en/mmr/reference/balpay_2012/source/balpay_2012.en.pdf
snb.com/en. (2014). Swiss Balance of Payment (annual report). Retrieved August 14, 2008; from http://www.snb.ch/en/mmr/reference/balpay_2007/source/balpay_2007.en.pdf
Jordan,T. (2012) Strong Swiss franc and large current account surplus – a contradiction?
Retreived February 19, 2013 from
http://snbchf.com/chf/strong-swiss-franc-current-account-surplus/
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