The KOF's leading indicator was once again much weaker than expected in May. From an upwardly revised 96.1 in April, the headline index dropped nearly 6.0 points to 90.2, some 4.8 points short of the market consensus and its weakest reading since November 2022. This was also its steepest decline since last May.

The latest setback reflected further losses in manufacturing as well as deteriorating conditions in financial and insurance services. Foreign demand also made a negative contribution but private consumption was mildly positive.

Today's update suggests that second quarter GDP growth will struggle to match the 0.3 percent rate just posted for the start of the year. Indeed, on paper, the economy is now tracking well below its historic norms. It also puts the Swiss ECDI at minus 24 and the ECDI-P at minus 18, both measures showing clear underperformance versus market expectations. All that said, the SNB is still likely to raise its policy rate again in June unless the inflation data improve.

KOF's leading indicator is expected to slide from 96.4 in April to 95.0 in May and so move further below its 100 long-run average.

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 KOF Swiss Economic Institute publishes this indicator monthly.