At 99.8, the KOF's October leading economic indicator was little changed from September's marginally weaker revised 100.3 reading. Even so, this was the measure's first print below its 100 long-run average since July and suggests that the economy has not yet fully adjusted to January's shock jump in the exchange rate.
Downside pressure this month came from the banking, construction and hotels and catering sectors, partially offset by minor improvements in metals, wood and chemistry. Overall manufacturing was broadly stable.
Today's results suggest no significant change in the near-term Swiss economic outlook. Total output seems to be expanding but growth is sluggish and the strong exchange rate a constant threat. With inflation (minus 1.4 percent in September) worryingly deep into negative territory, a further relaxation of SNB policy remains a real possibility over coming months.
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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