The KOF's leading economic index fell from a downwardly revised 92.7 in May to 89.7 this month, its weakest reading since December 2011.
June's decline reflected an unwinding of what proved to be just a temporary improvement in industrial sentiment in mid-quarter and reflected deteriorating morale in most of the major subsectors. The financial area also made a negative contribution as did overseas demand but construction staged a partial rebound and consumption at least held its own.
Nonetheless, the June report warns that hopes that the economy had largely adjusted to January's shock adjustment to SNB FX policy may have been premature. Taken at face value today's figures point to a poor third quarter. The SNB was intervening yesterday to hold its currency down against the euro and the KOF's latest update suggests that it will be more determined than ever to prevent any further appreciation over coming months. Another cut in (already negative) official interest rates is becoming an increasing possibility.
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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