Economic activity slowed surprisingly sharply last month according to the new PMI survey. At just 48.2 the headline index was more than 5 points beneath its weaker revised December level and below the 50 growth threshold for the first time since April 2013. January's drop was the steepest since November 2008 and offers the first real idea of the impact on the Swiss economy of the SNB's decision to abandon its FX target floor on 15th January.
The output sub-index (51.1) actually held above 50 but was still 6 points short of its year-end reading while backlogs were down some 9.4 points at 44.2. Quantity of purchases (44.8) was similarly well into negative growth territory although at 48.7, employment held up rather better. Stocks of finished goods (41.9) were off more than 5 points but by far the largest drop was in input cost which slumped a massive 26.7 points to a record low of 21.2 in response to the appreciation of the CHF.
Today's report suggests that both growth and inflation have moved in the wrong direction since the shift in SNB policy. In particular, deflation pressures look to have built significantly and the likelihood of a return to positive CPI inflation in 2015 now looks remote at best.
The SVME Purchasing Managers Index (PMI) tracks trends in Swiss manufacturing. Around 200 Swiss industrial companies are surveyed.
The PMI is very sensitive to the business cycle and tends to match growth or decline in the economy as a whole. To construct the PMI the Swiss Association of Purchasing and Materials Management conducts monthly surveys of purchasing executives on their performance in the current month versus the previous period. Because the amount of materials ordered by purchasing managers parallels the level of manufacturing production, the PMI is a gauge of production growth. The results are indexed with a centerline of 50; values above 50 indicate expectations of expansion and values below 50 indicate expectations of contraction for the manufacturing sector.
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