International trade has long been the key to prosperity in Switzerland. Traditionally, its merchandise trade deficit has been generously compensated by a surplus trade in services. This surplus amounted in 1999 to US$18.7 billion or 7.5 percent of GDP. The country is heavily dependent on export markets to maintain its large export sector, supply raw materials for the domestic manufacturers, and diversify the array of goods and services available locally. Switzerland has traditionally very liberal trade and investment policies, its commercial law and legal system are highly developed, and foreign investments are protected by solid domestic policies. The Swiss franc is one of the strongest currencies in the world and the country is known for the soundness of its banking industry, so it has all the major factors benefiting international trade.
Chief Swiss exports include machinery, chemicals, metals, watches, textiles, agricultural products, and imports include raw materials, machinery, chemicals, vehicles, metals, agricultural products, and textiles. Principal economic partners in 1998 included the EU, 80 percent (Germany, 33 percent; France, 12 percent; Italy, 10 percent; the Netherlands, 5 percent; Britain, 5 percent); the United States, 6 percent; and Japan, 3 percent. Trade with the EU in 2000 fell below average by 9.9 percent, while exports to the U.S. went up by 15.9 percent and to Japan by 16.4 percent. Export growth was also impressive to the Commonwealth of Independent States (CIS, the former USSR), South Korea, China, and Turkey, each
|Trade (expressed in billions of US$): Switzerland|
|SOURCE: International Monetary Fund. International Financial Statistics Yearbook 1999.|
with growth of more than 40 percent, although from a low base in 1999. Irrespective of the fluctuations, the EU remained the crucial economic partner for Switzerland. The strong and flexible Swiss economy reacts to international market fluctuations with an elaborate precision, keeping itself competitive.
Contrary to its traditionally positive foreign trade balance, Switzerland accumulated a trade deficit of nearly US$554 million in the first 9 months of 2000, compared to more than a US$1 billion surplus for the same period of 1998. Such negative trade balance is typical, however, in periods of strong economic growth—like the one Switzerland went through between 1998 and 2000— when higher local incomes boost domestic consumption and imports consequently outgrow exports. The 2000 imbalance, however, was caused by foreign price changes rather than by the strong domestic demand. It is almost certain that if international crude oil prices had remained unchanged over that period, the Swiss trade balance would have accumulated probably a surplus of more than US$500 million. Import growth during the same period was 13.2 percent and the value of imports of energy rose by 87 percent also largely due to increasing oil prices. Export growth was driven by the expansion of the EU and other foreign markets, and strong export growth product categories included precision instruments, watches, and metals. The traditional Swiss watch industry in late 1990s was very successful in exporting mostly watch parts, while exports of ready-made watches were somewhat shrinking. Exports of food (notably cheese and chocolate) were rather weak, as were the international sales of the troubled Swiss textile industry.