Tuesday, January 08, 2008

Swiss Current Account Surplus Soars

Reflecting the undervalued nature of the swiss franc, Switzerland's current account surplus rose sharply in the third quarter of 2007 compared to the same quarter the previous year. The surplus was 22.2 billion swiss franc, up from 17.0 billion in the third quarter of 2007. During the latest 4 quarters, the surplus was 85 billion swiss franc-or 17% of GDP.

Interestingly, all subcomponents strengthened. The trade surplus (both goods and services) rose from 9.8 billion swiss franc to 12.1 billion, and the factor income surplus rose from 10.1 billion to 12.6 billion. Even net transfers strengthened, from -3.0 billion to -2.5 billion.

To the extent a current account surplus reflects better investment return in other countries, it need not imply an undervalued currency. Yet real interest rates are no lower than in the euro area, and they are higher than in the U.S., so in this case the surplus does in fact reflect an undervalued currency.


Anonymous Anonymous said...

How much will the Swiss Franc rise against the Swedish Krona over the next 12 months?

Göran, Sweden

8:46 AM  
Blogger stefankarlsson said...

X %.

In other words, I don't know. Exakt currency forecast are impossible to make if you want to make it accurate.At most, general trends can be forecasted, which is what my assessment of the Swiss Franc refered to.

My reference to Swiss Franc undervaluation was mainly made in relation to U.S. dollars, Euros and U.K. pounds. The outlook for the Swedish krona is more uncertain. The underlying fundamentals would suggest krona strength, but given the negative sentiment prevailing, the timing of this turnaround looks uncertain.

10:55 PM  

Post a Comment

<< Home