The KOF leading economic index was surprisingly weak at year-end. A 96.6 reading was off 0.7 points versus its downwardly revised December print to touch its lowest mark since April.
The second successive decline was again largely a function off deteriorating sentiment in manufacturing (notably metals and food processing) alongside some additional worsening in activity rates in construction and consumption. However, there was slightly better news on foreign demand and the domestic finance industry.
The SNB opted to keep its powder dry after the ECB's less than aggressive ease at the start of the month prompted a rally in EUR/CHF. Nonetheless, the Swiss economy looks to be struggling this quarter and deflationary pressures would appear to be as marked as ever. Today's report suggests no improvement near-term which, at the very least, should leave financial markets looking warily over their collective shoulder for signs that the central bank might have to loosen policy again anyway.
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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