Macro Highlights June 1st 2015

Analysis - 6/2/2015

Our Investment Research Department publishes a weekly newsletter with a round-up on the main economic developments and news flow.

Astride recession and expansion

The Swiss economy shrank 0.2% in the first quarter, leaving it with one foot in recession. GDP growth is now running at a meagre 1.1% year on year, down from 1.9% previously. Switzerland is no longer the envy of the Euro Zone countries.

Yet there is no cause for deep concern. Although the news in itself is not good, a number of factors cast it in a better light. To begin with, a decline was expected after the SNB’s decision to do away with its cap on the franc. Secondly the present situation is not likely to last. As proof, leading indicators (compiled by the KOF and Markit) show that confidence among Swiss manufacturers is already recovering. Growth will not descend into negative territory for a protracted period.

A closer look at the Q1 data reveals reassuringly that it was mainly an imbalance between imports and exports that dented growth. Inescapably the franc’s 15% appreciation against the euro came as a severe blow to exporters’ competitiveness. We shouldn’t forget that Europe alone accounts for 58% of the goods and services sold by Swiss firms abroad. (...)

South korea feels the pain of a strong currency

The ultra-accommodative money policy pursued by the BoJ since late 2012 has driven down the value of the yen and thus helped Japan achieve the objective of reflating and kick-starting its stalled economy. South Korea, whose economic and industrial model is similar to Japan’s (meaning that it is heavily geared towards producing automobiles and consumer electronics) is seeing the momentum of its exports threatened by the yen’s steep depreciation, since Korean and Japanese goods and services are in direct competition.

Because its economy is so dependent on foreign trade and highly integrated in the global value chain, South Korea reacts immediately to changes in the dynamics of international commerce. Of the world’s leading economies, South Korea’s is the one that boasts the strongest operational leverage after that of… you guessed it—Japan. At the same time the predominance of cyclical companies in its equity benchmark makes its stockmarket one of the most heavily exposed to the pace of global economic growth. (...)