The KOF's leading economic index fell 1.8 points to 97.0 this month and so slipped further below its 100 long-run average. However, with almost 94 percent of the survey panel responding before the SNB unexpectedly pulled the plug on its FX target floor, the likelihood is that today's reading is misleadingly firm. Expect a sizeable decline in the February report.
The January print reflected reduced activity in industry and a worsening in export prospects. Against this there were minor improvements in the construction and consumer sectors.
The headline index has now fallen for three months in a row and January's reading was the weakest since June 2012. Swiss economic prospects have become highly uncertain in the wake of the local currency's dramatic appreciation this month. Today's report does little to clarify the situation.
The KOF Economic Indicator is a composite leading indicator that aims to identify shifts in the Swiss business cycle around three months ahead of the actual event and, until the start of 2014, was based on twenty-five different economic indicators. The old version of the KOF Economic Indicator used the previous year's GDP growth rate published by the Swiss State Secretariat for Economic Affairs (SECO) as a yardstick. The revised measure still incorporates SECO data; however, KOF has changed over to month-on-month changes in GDP which are generated via statistical methods. This reference series is not about exact GDP figures but about the direction and strength of the economic trend. The new objective of the Barometer is the same as the old objective: achieving maximum possible accuracy in predicting the Swiss business cycle.
The indicator measures overall economic activity through a qualitative business survey about developments in the recent past, the current situation and expectations for the next three to six months. Getting an accurate handle on where the economy is headed is inevitably a vital element in all investment decisions and the new measure uses some 219 variables in order to do just that. The set of variables will be reviewed every autumn.
Survey questions relate to production, orders and stocks of finished goods. The Swiss Institute for Business Cycle Research (KOF) publishes this indicator monthly.
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