Swiss external investment position

Switzerland's wealth is not what it used to be. Switzerland is one of the countries with the largest balance of assets invested abroad. The difference between foreign assets held by the Swiss and their liabilities to foreign creditors - the \"net international investment position\" - amounts to 90 per cent of annual GDP. This balance is comfortable, but less than we used to think until recently. The Swiss National Bank has indeed substantially revised the figures in the 3rd quarter statistics published in December The figure below shows the net international investment position since 2000 according to the latest figures (red line), as well as according to the statistics published in September (blue line, up to the second quarter of 2020). We can see that the update has changed the situation, with a reduction of between 150 and 200 billion since 2016, i.e. about a quarter of GDP. Moreover, the net position in relation to GDP now shows a moderate downward trend, which was not the case before. Swiss net external investment position Billions chf 1000 900 800 700 600 500 400 300 200 100 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Data as of 2nd quarter Data as of 3rd quarter What accounts for this change? It illustrates the difficulty of precisely accounting for the assets and liabilities associated with the Swiss entities of international groups, as explained in detail by the SNB. The figure below breaks down the revision of the total net investment position (black line) into assets held by multinationals (foreign direct investments, blue line), so-called portfolio investments (stocks and bonds, red line) and other categories (green line). The change reflects two components: a revision of stocks and bond positions since 2008, reflecting almost exclusively stocks, and a revision of foreign direct investment since 2014.

Revision of the net position 50 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 -50 -100 -150 -200 -250 Total FDI Stocks and bonds Other categories A more detailed analysis shows that these changes primarily apply to Switzerland's liabilities abroad. The figures below show the breakdown of the total revision between the three categories for Switzerland's assets (left) and liabilities (right). The revisions to liabilities reflect adjustments linked to the domiciliation of the entities of international group. Revision of assets Revision of liabilities 350 2005 2010 2015 2020 350 2005 2010 2015 2020 300 300 250 250 200 200 150 150 100 100 50 50 0 0 -502000 -502000 -100 -100 -150 -150 Total Total FDI FDI Stocks and bonds Stocks and bonds Other categorie Other categories

What about the balance of payments? The net international investment position figures show the state of Switzerland's assets abroad at a given point in time. A related statistic is the balance of payments, which shows the flow of cross-border transactions. The net flow for all financial transactions corresponds to the balance of trade, capital and labor income (the correspondence is in fact not exact due to statistical inaccuracies). We can examine whether a revision is also observed at this level. This is indeed the case, although more recently. The figure below shows the current account balance, which is essentially the balance of trade in goods and services, and the balance of interest and dividend payments according to the figures published in December up to the third quarter (red line) and those published in September (blue line). Although Switzerland is one of the countries with the highest surplus in economic relations with foreign countries, this balance has been revised downwards in recent years and shows a certain downward trend recently. This change is almost exclusively due to an upward revision of the interest and dividends that foreign multinationals receive from their Swiss-based entities. It is therefore a consequence of the revision of the net position described above. Swiss current account balance Billions chf 30 25 20 15 10 5 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Data as of 2nd quarter Data as of 3rd quarter What should we make of this? While these adjustments may seem interesting especially for the aficionados of economic statistics (like the author of these lines), their magnitude is not negligible and they affect our understanding of international economic relations. In particular, the growing size of multinational groups has a substantial influence on statistics at the country level. While this is not really news for a small open economy, such as Switzerland or Ireland, recent work has shown that it is becoming a problem even for large countries, including the United States.