Switzerland has long been a country with a surplus on its external transactions. Although the total current account balance has been relatively steady over the past twenty years, this conceals profound changes. The contribution of financial returns has fallen sharply, and the trade surplus is now based solely on chemicals and pharmaceuticals and on commodity trading (merchanting trade). While the good performance of these sectors has benefited Switzerland, the country has become more exposed to possible changes in these areas of activity.
Decline in financial income
The figure below shows the Swiss current account balance as a percentage of GDP since 2000 (omitting non-monetary gold flows, which make the reading more difficult). The total balance (red line) is composed of the goods and services balance (blue line), the factor income balance (wages of cross-border workers, interest and dividends on financial assets, green line) and the transfers balance (steady and slightly negative, not shown for clarity).
Before the 2008 crisis, the balance of goods and services and the income balance similarly contributed to the total surplus, which amounted to 10% of GDP. The situation has since markedly changed, with the factor income surplus disappearing. This is due to the trend increase in the deficit related to the income of cross-border workers, and the decline in returns on financial assets held by Switzerland abroad. The increase in the balance of goods and services helped stabilize the total surplus, which fell to 5% between 2014 and 2020, before rising rapidly to 10%.
The changing composition of trade
The increase in the surplus in trade in goods and services since 2020 may be seen as an encouraging sign of Switzerland's sustained competitiveness. But not really overall, as it is based on two sectors of activity (and remember that a surplus is not necessarily a good sign).
The figure below breaks down the balance of goods and services into four groups. Trade in chemicals and pharmaceuticals (red line), trade in other goods (storm line), income from commodity trading (blue line) and trade in services (green line).
The situation is very mixed. While the balance for «other goods» is stable and negative, the surplus for services has been declining since 2008 and has turned into a deficit. The increase in the total surplus reflects only the steady rise in the balance for chemicals and pharmaceuticals, as well as the growing role of brokerage activities. The latter shows an interesting dynamic. While the balance had stabilized after 2010, following a sharp rise, it has clearly resumed its rise since 2020. The rise in the Swiss external surplus over the past two years therefore essentially reflects this sector of activity.
A closer look shows that the turnaround in the services balance does not reflect a decline in Swiss exports, which have remained stable, but a marked increase in imports since the early 2010’s. In contrast, the rise in the surplus in the chemicals and pharmaceuticals balance is the result of rising exports, as imports in this sector have increased only slightly (the same is true for brokerage, but not surprisingly because this activity does not involve imports). The result is an increased concentration of Swiss exports in these sectors.
In the early 2000s, chemicals and pharmaceuticals accounted for 20% of exports of goods and services, compared with 45% for other goods and 35% for services, with brokering playing only a minor role. Today, chemicals and pharmaceuticals alone account for just under 30% of exports, a share similar to that of other goods and services, and brokerage accounts for 15% of the total.
