The KOF's leading economic index slumped in February as the effects of the SNB's abandonment of its minimum FX target became more fully apparent. At 90.1 the headline index was some 6 points below its weaker revised January reading, its steepest decline since 2011, and fully 15.4 points short of its mark a year ago.
Deteriorating sentiment was especially obvious in manufacturing industry, construction and consumption. Worries about lost competitiveness were a major factor for the Swiss export community and more general uncertainty about the outlook for SNB policy also a sizeable negative.
That said, the EUR has staged a partial recovery and, at EUR/CHF1.06, the single currency is now well above its mid-January low. Nonetheless, it will take many areas of the economy time to adjust to the new FX regime and upcoming Swiss economic data could well be very volatile.
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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