Boom phase in exports - but for how long?

In the first quarter of 2021, the Swiss Euler Hermes Export Forecast stands at 3.13 points, more than two points above the value of 0.78 points reported in January, thus reaching a new record high. Accordingly, a strong increase in Swiss exports can be expected in 2021. This steep upward trend is partly attributable to the low starting level of the prior-year months on the statistical side and the extremely dynamic economic developments in some regions in recent months, particularly in China and the USA, on the economic side.

The industry is also currently experiencing a pronounced boom phase, which the still disrupted supply chains are unable to cope with. This is according to the economic commentary by hpo forecasting for Q2 2021. Due to the Covid-19 distortions, i.e. the mix of lockdowns, gigantic fiscal stimuli and extremely expansive monetary policy, the downturn and upturn phases in industry have been proceeding as if in fast motion for more than a year, but all the more pronounced for it.

Starting signal for the resurrection of private consumption has been given

After a weak start to 2021 from an economic perspective, there has been movement in private consumption after Easter due to initial easing of the Corona restrictions. "In view of recent declines in new infections and good progress in the vaccination campaign, the economy should kick into turbo gear in the second half of the year. We expect a strong consumption boom fueled by pent-up demand in the context of declining economic uncertainty," said Katharina Utermöhl, European economist at Euler Hermes. Overall, Euler Hermes expects global trade volumes to increase by +7.9 percent this year and by a further +6 percent in 2022 (2020: -8.1 percent). The Swiss economy is expected to grow by +3.6 percent in 2021 and +3.0 percent in 2022 (2020: -2.9 percent) - thus reaching its pre-crisis level already in late summer 2021.

According to hpo forecasting, consumption has increased in the USA in particular, due to the progress made with the vaccination programs and the stimulus packages. hpo forecasting refers to statements made by various market observers, according to which many companies are having great difficulty in finding new employees, despite the continuing high level of unemployment in the USA. The additional USD 300 per week that the unemployed in the USA will receive until September 2021 would lead to the paradoxical situation that Americans in the low-wage sector earn more when they are unemployed than when they are working. In general, pandemic successes in developed countries are boosting consumer sentiment, according to hpo forecasting's economic commentary.

Boom phase: rising demand exacerbates supply bottlenecks

Swiss exports are benefiting from the global industrial upswing, writes Euler Hermes. However, the resulting high demand could exacerbate supply chain tensions due to restart problems on the supply side in the short term. These bottlenecks are serious in the semiconductor industry, for example, which affects the IT industry and the automotive sector, among others. The result will be price increases, especially for industrial metals and energy sources. Stefan Ruf, CEO of Euler Hermes Switzerland, comments: "The price of copper has doubled within a year. Freight prices for container exports are once again reaching record levels. These forces could dampen the boom somewhat. Besides inflation risks, COVID-19 remains in focus, or more precisely, the competition between vaccination campaigns and the impact of vaccines on the one hand and new COVID-19 variants on the other."

The experts of hpo forecasting point to another example: According to the online magazine "The Markt" (NZZ Group), many major buyers of semiconductors are currently ordering double to triple the quantities of semiconductors they actually need, so that their orders are given higher priority by the producers. At the same time, semiconductor manufacturers have been overdoing it in recent weeks with announcements of investments in the double-digit billion range to expand their production capacities. On the one hand, these investments are politically desired in order to reduce dependence on Asian manufacturers in particular; on the other hand, there is a threat of overcapacities in the medium term. For the time being, however, equipment manufacturers are looking forward to large orders.

Swiss exports exceed pre-Corona level

It seems that after the slump due to the Corona pandemic, a kind of boom phase is following. According to Euler Hermes, the recovery in Swiss foreign trade is continuing. In the first quarter of 2021, exports increased by 4.8 percent (seasonally adjusted) compared to the fourth quarter of 2020. Thanks to this third consecutive quarterly increase, exports again exceed the level seen before the outbreak of the Corona pandemic. Imports also grew by 1.7 percent compared to the final quarter of 2020. The trade balance closed with a surplus of CHF 11.3 billion. According to the Federal Customs Administration, more than half of the increase was in chemical-pharmaceutical products (+ 1.4 billion francs), with the highest growth in medicines (+ 1.2 billion francs). Exports of machinery and electronics, metals and watches also increased. At +4.0 percent (+ 5.3 billion Swiss francs), the latter are once again approaching their sales levels from the strong years of 2018/19. Regionally, Switzerland exported more to all three major economic areas in terms of value in the first quarter of 2021. In particular, exports to North America (+ 18.5 percent) increased compared to Europe (+ 4.6 percent) and Asia (+ 2.6).

Is the boom phase just a temporary phenomenon?

Business cycle analyses, such as those carried out by hpo forecasting, indicate a restrained development once the catch-up effects have faded. "According to our real economic business cycle observations, we are still very early in the downturn phase of the cycle, which did not peak in the industrialized countries (OECD) until the beginning of 2020," says the hpo economic commentary. Although all sentiment indicators are currently pointing sharply upwards, model calculations continue to indicate a longer phase of rather sluggish consumption after a short phase with catch-up effects, both in North America and Europe as well as in Asia.

Sources: Euler Hermes and hpo