The KOF's leading economic indicator unexpectedly fell in November, albeit from a higher revised October base. At 97.9 the headline index was more than 2 points short of its level at the start of the quarter, back beneath its long-run average (100) and at its lowest mark since April when the economy was still reeling from the effects of the SNB's abandonment of its minimum EUR/CHF peg in January.
November's decline was largely attributable to worsening sentiment in manufacturing and, to a lesser extent, a reversal in exports. This warns of a probable renewed fall in the PMI, due tomorrow. However, the financial and hospitality sectors essentially moved sideways and construction actually improved.
Nonetheless, today's data are disappointingly soft and bolster the likelihood of the SNB responding at next week's policy setting meeting to any easing moves by the ECB on Thursday. Such speculation, aided by aggressive central bank rhetoric, has seen the CHF weaken in recent days amidst increasing talk of possible SNB intervention.
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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