The KOF leading economic indicator lost a little ground this month. At 89.5, the headline index was 1.4 points short of its March reading and below 90 for the first time in more than three years.
However, April was the third consecutive month in which the headline index has hovered around this mark which suggests that the economy has got over the initial shock of January's change in SNB FX policy and is beginning to adjust. That said, most sectors appear to be struggling and lost competitiveness has placed a major squeeze on margins.
A contraction in real GDP last quarter remains firmly on the cards and the SNB, despite pulling the plug on its FX target floor, will be desperate to avoid any further CHF appreciation.
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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