A note on Swiss exports sector and its similarity to Ireland

Philipp Hildebrand of the Swiss National Bank gives an insightful speech on Swiss export sector. In a way the structural changes in Swiss export sector helped Swiss economy recover faster.

He touches on three aspects of Swiss exports:

  • The exports have increasingly moved towards Asia. It is one of the few economies to run a trade surplus with China and other Asian economies. As Asian economies recovered faster, so did Swiss exports. This wasn’t the case with other EU countries whose exports moved more to East Europe.
  • Exports focus on consumer goods which are also more specialised. Barring watches and chocolates, Swiss exports also moved into pharma goods. Early research shows, exports fell more in economies who relied on capital goods like Japan. People postponed these goods in the crisis but one cannot really postpone health related goods like pharma.
  • High quality of Swiss exports – This is a well-known factor. Swiss goods have been known for their quality. It is safe to assume that people will not substitute high quality goods in a crisis in the short-term. This was indeed the experience of Swiss export sector as well. Precision goods fell marginally and Swiss watches have recovered strongly.
    He also explains how to measure quality of exports.

He adds there are risks as if Asian economy declines, so will Swiss exports.  Though a bigger risk has emerged from the appreciation of Swiss Frank:

Furthermore, current exchange rate developments pose a major challenge for Swiss exporters. Since the onset of the financial crisis, the Swiss franc has appreciated in real terms by around 15%. This appreciation puts up the price of Swiss exports abroad or narrows the margins for Swiss exporters – or a combination of both. This will be reflected sooner or later in the export figures. Indeed, in recent months, the recovery of Swiss goods exports has slowed markedly; although this is also related to a slowdown in global economic momentum.

The financial crisis and financial market concerns regarding the public finances of a number of industrialised countries have increased demand for the Swiss franc as a safe haven currency. The stability of the euro area is therefore an important factor influencing the Swiss franc and the Swiss economy as a whole. EU citizens clearly have a vested interest in the stability of the euro.

Useful speech. Helps understand the Swiss economy and recent developments. For an Indian, Swiss exports are always fascinating so good to know more about them.

Another interesting thing is the connection to Ireland. Ireland exports share common features with Swiss:

  • Asian orientation. Ireland too runs current account surplus with Asia
  • It also has specialised consumer goods for exports like Pharma
  • The quality of Irisih goods is also high. As per the unit value of exports (measure for quality) Ireland exports also rank very high.

Apart from this, banks in both took real large risks and total liabilities much larger than the size of their economies.

So why don’t we see the same story for Ireland? Or why Switzerland did not suffer as much as Ireland?

The major reason is Ireland is in EMU. So its central bank cannot lower rates and expand its balance sheet. Second, the exchange rate cannot depreciate. CHF did depreciate initially and appreciated later on. SNB was more creative and willing to pump monies than ECB.

Antonio Fatas argues in this post saying UK has done as bad as Spain despite having separate mon policy and floating Pound Sterling. So, one cannot call it a crisis of Euro alone. Agreed. But we have an interesting comparison of Ireland and Swiss here which gives different answers. Though again, the above analysis is purely based on comparison of Ireland and Switzerland export sector. More analysis is needed to develop a more comprehensive picture.

One Response to “A note on Swiss exports sector and its similarity to Ireland”

  1. Anantha Nageswaran Says:

    Switzerland did not really benefit from a weak CHF. CHF did not depreciate much nor was ECB squeamish in providing liquidity or in cutting rates. That also does not serve as a valid explanation. Irish banking sector became far too big for its economy than the Swiss banking system did. Switzerland did not give blanket guarantees to creditors of UBS. That was the only bank in trouble. Switzerland gave money to UBS under fairly strict terms unlike Irish bailout of its banks and indirectly, foreign banks. Switzerland has managed a fiscal surplus. Simply because it did not have to engage in a very expensive bailout, it did not have to implement drastic reduction in spending, entitlements, etc. which would have dented confidence, etc.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: