KOF Bulletin

The KOF Business Situation Indicator for the Swiss private sector fell again in March after initially not continuing its downward trend in the previous month (see chart G 8). Firms’ expectations about their business activities over the next six months are slightly more confident than they were in the previous month. Conditions in the Swiss economy remain challenging.

Cryptocurrency markets are rallying to new highs. Simultaneously, another type of cryptoasset is gaining relevance: stablecoins. Unlike Bitcoin & Co, stablecoins aim to maintain a steady value against a national currency. They facilitate trade on cryptoexchanges, underpin the DeFi ecosystem and promise to be a stable store of value. Unregulated, however, they come with significant risks. KOF economists Hugo van Buggenum, Hans Gersbach and Sebastian Zelzner discuss regulatory measures.

The sharp rise in energy prices since 2022 has led to much debate. But how important are energy prices really for companies? And through which channels are companies exposed to energy prices? To answer this question, researchers from KOF, EPFL and the University of Lausanne conducted a company survey funded by the Enterprise for Society (E4S) Foundation and the MTEC Foundation.

According to the KOF Economic Forecast, the global economy will not pick up speed again until the second half of the year. The loss of household purchasing power caused by the high inflation rates of the past two years will dampen private consumption in the short term. In addition, the more challenging funding conditions and the high level of political uncertainty are weighing on investment momentum in many countries.

Michael Graff, Co-Head of the Research Division Macroeconomic Forecasting and Data Science, explains his views on the successful initiative for a 13th monthly AHV pension payment and the future of the welfare state in an age of demographic change. He also reveals what plans he has for his retirement.

The results of the semi-annual KOF Investment Survey point to a nominal increase in investment of 8.2 per cent in 2024, driven by technological progress and supported by the service sector. By contrast, industry and construction are reporting a slowdown or even a decline in their investment plans owing to funding shortages and a downturn in demand.

The latest KOF research shows that AI technology is being introduced in relatively closed groups, similar to exclusive clubs. This could lead to a concentration of relevant AI know-how, making it more difficult for this key technology to spread and increasing dependence on a small number of technology providers. This in turn can make the economic performance of different regions less equal. Policymakers should push to overcome excessive cluster effects.

A recent study by KOF analyses the impact that central bank communication has on financial markets, which are a key transmission channel for monetary policy. The findings show that monetary policy speeches are an important source of information for the formation of expectations in financial markets. The findings also suggest that volatility in financial markets increases when a central bank communicates too complexly.

The KOF Business Situation Indicator for the Swiss private sector rose slightly in February (see chart G11), following two consecutive months of modest declines. Overall, business activity at Swiss companies has not changed significantly since October 2023. The sharp downward trend of the first three quarters of 2023 has been broken for the time being. Although the Swiss economy has recovered, there is a lack of momentum.

Switzerland’s seasonal worker statute, which was abolished in 2002, tied residence permits to employers. According to the monopsony theory, such regulation gives employers greater bargaining power in wage-setting and could depress wages. This article analyses this hypothesis and suggests that immigrants’ social and economic rights – strengthened by the free movement of people – may have helped to reduce wage differentials.

Women are still under-represented in managerial positions in the academic sector. A programme for female professors in Germany aims to change this. An ongoing study involving KOF is investigating the success of this support programme.

Has the free movement of people had a negative impact on Swiss firms’ willingness to train apprentices? A new study shows that the number of apprenticeships did not fall during the first few years following the opening of the country’s border. However, the reasons why firms train apprentices has changed because it has become easier and cheaper for them to recruit suitable workers externally.

The KOF Business Situation Indicator hardly changed in December (see chart G13). Its rapid decline, which lasted from the beginning of 2023 into October, has slowed for the time being. The Swiss economy is currently sluggish.

As in many other countries, wealth concentration in Switzerland has increased in recent decades and remains high. At the same time, taxes have regularly been reduced over the last 50 years. Wealth tax cuts explain around a quarter of the observed growth in wealth concentration. This means that there are other key drivers of wealth inequality besides taxes.

How did the Swiss fare during the first two waves of the COVID-19 pandemic? Using data from Dargebotene Hand and Swisscom, analysis conducted by Marc Anderes and Stefan Pichler shows that calls to the Dargebotene Hand helpline increased significantly just after the outbreak of the pandemic.

Restrictive monetary policy, falling but still high inflation and multiple uncertainties will continue to slow the global economy this year. According to the KOF Economic Forecast, worldwide business activity will not pick up again until 2025.

Alexis Perakis, monetary policy expert at KOF, talks in this interview about his predictions for inflation, interest rates and the Swiss franc exchange rate this year. He considers the current debate about interest-rate cuts to be premature.

There are many concerns about how artificial intelligence (AI) might impact communication and democratic processes adversely, as opportunities to the production of fake news are becoming more and more sophisticated. Yet AI also offers new ways to organise democracy. It could even enable direct democracy to be reinvented. Hans Gersbach (KOF) and César Martinelli (George Mason University) have been exploring these possibilities and they present one of its core ideas in this article.

Johannes Dahlke, Assistant Professor of Digital Innovation and Entrepreneurship at the University of Twente, KOF Research Fellow and former member of the Innovation Economics Section, talks in this interview about the potential of artificial intelligence and explains how technological change will affect the labour market and individual professions.

The KOF Business Situation Indicator for the Swiss private sector continued to deteriorate in November (see graphic G 3). This was the third monthly decline in a row. The business outlook for the next six months remains virtually unchanged at a subdued level. Economic activity in Switzerland remains sluggish.

The development of new digital technologies is increasingly dependent on international knowledge. In the recent past this trend has led to political concerns about dependence on foreign knowledge suppliers. A study by KOF, which uses a global patent dataset from 1980 to 2015, emphasises the importance of international knowledge networks for technological progress.

The KOF Business Situation Indicator for the Swiss private sector, which is calculated from KOF’s Business Tendency Surveys, fell in October for the second month in a row (see chart G5). Following a modest decline in the previous month, business activity cooled significantly in October. By contrast, companies’ business expectations for the coming six months are almost unchanged and more or less average on a medium-term comparison.  

Switzerland’s population is ageing. This article attempts to qualitatively assess the impact that this trend has on inflation. Its immediate effects are likely to be moderate. At the same time, there are risks: inflation could turn out to be higher but, surprisingly, it could also be lower.

In today’s ever-changing global economy, clear and effective communication by central banks is crucial to build trust in their policies and manage public expectations. A new study by researchers at KOF and ETH uses an experiment to investigate how central banks influence inflation expectations through different media formats and which communication formats are most effective.

Central banks shape global financial markets through their carefully crafted speeches. Words often trigger immediate market reactions and provide a more timely signal than many regularly updated economic indicators. When compiling its analysis, KOF uses natural language processing to decode indicators from central bank transcripts that make it possible to replicate and predict market movements in a timely manner.

The KOF Business Situation Indicator for the Swiss private sector retreated very slightly in September after flatlining in the previous month (see chart G 8). Its decline was modest, however, and in return companies are slightly more confident about their future business than they were before. The Swiss economy is not showing any fundamental signs of change at the moment.  

Swiss foreign trade is holding up well despite global turbulence and the current weakness of major trading partners such as China and Germany.

The international economy has slowed. Above all, the effects of China’s weakness and of restrictive monetary policy are weighing on the global economy.  

KOF economists Vera Eichenauer and Heiner Mikosch talk in an interview about the Chinese economy’s weaknesses and their impact on the Swiss economy.

The KOF Business Situation Indicator for the Swiss private sector pauses in August (see Chart G 5). After a sharp decline in the previous month, it does not fall further. Expectations for further business development remain rather subdued. The Swiss economy is developing sluggishly.

In many countries, support for xenophobic views varies considerably from region to region. It is often strongest in areas without a large proportion of foreigners. A new study shows that a lack of local experience with immigration is partly responsible for this. Regions that have had more experience with immigration and integration in the past exhibit a much weaker nationalist backlash against new waves of immigration.

Restricting employment opportunities for refugees reduces their likelihood of working and earning in the long term. This imposes high costs on refugees and host societies.

KOF economist Andreas Beerli explains in an interview why immigration is desirable from an economic point of view and in which areas Switzerland still needs to improve.

An estimated 33,000 people die in the European Union every year as a result of being infected with antibiotic-resistant germs. The number of deaths associated with antimicrobial resistance worldwide is estimated to be more than 5 million per year. New antibiotics urgently need to be developed, but this is often not profitable for companies. This article discusses a dynamic funding model that would make it more attractive for firms to develop new antibiotics.

A significant increase in company bankruptcies has been evident in Switzerland since autumn 2022, while business start-ups have been declining sharply for several months. The following article examines this trend in detail and gives possible reasons for this increase.

Although many Swiss firms see their business activities as being exposed to physical climate risks, they nevertheless view ecological change predominantly as an opportunity rather than a risk. Investment aimed at combatting climate change is accelerating and, in comparison with the EU, Switzerland is one of its pioneers. Having added a new block of questions to its investment survey, KOF can shed light on the economic impact of climate change from the perspective of Swiss companies.  

Although the much-feared energy crisis has failed to materialise, persistently high inflation, rising interest rates and geopolitical conflicts are weighing on the global economy.

The KOF Business Situation Indicator for the Swiss private sector rose slightly in June, averting a third consecutive decline (see chart G 16). However, this modest improvement does not yet indicate that the Swiss economy has received a significant boost. Business expectations about developments in the near future emphasised this view; they hardly changed compared with the previous month and were average overall.

The KOF Business Situation Indicator fell across the board in May. This means that the business situation is worsening for the second month in a row, and it is significantly less encouraging than it was in May last year (see chart G 10). Economic activity in Switzerland is currently sluggish.

One-fifth of Swiss industrial companies are moderately to heavily reliant on critical inputs from China. Their greatest dependence is in the electronics sector, followed by the pharmaceuticals and chemicals sectors. Just under one-fifth of firms are unable to assess their own reliance. The measures already taken or those that are planned reveal that production and procurement are being redirected towards Europe and Switzerland. These are among the findings of a KOF company survey.

Michael Graff, head of the Macroeconomic Forecasting research division at KOF, explains the advantages and disadvantages of the Swiss pension system and why pension reforms are so difficult to implement.

This article is a collaboration between man and machine. We conducted an interview with the ChatGPT voice software on economics, business cycle research and politics. KOF innovation researcher Mathias Beck and KOF co-director Hans Gersbach rank the quality of ChatGPT’s responses and its potential below.

The KOF Business Situation Indicator for the Swiss private sector, which is calculated from the KOF Business Tendency Surveys, fell in April after barely moving in the previous month (see G 3). Business is thus still performing better than it did in the autumn of last year but is no longer as buoyant as it was in January.

What factors influence wage levels in the various sectors? This analysis shows that, in particular, the extent of the shortage of skilled workers in an industry is positively correlated with the wage growth expected by companies.

At first glance, ‘bail-in bonds’ are an attractive way of recapitalising banks in distress. In the case of Credit Suisse, however, according to FINMA, loss buffers amounting to over CHF 50 billion were not activated for recapitalisation purposes because no compulsory restructuring was ordered. Bail-in bonds, which can only be written off or converted into equity through state intervention, present a number of pitfalls, which are discussed in this article.

There is currently much discussion about developments in the local real-estate and rental housing markets. This article adds to the debate by classifying the Swiss construction sector during the current period of upheaval.

2022 will go down in history as an exceptional year for labour markets in Switzerland and many other European countries. KOF is forecasting that employment will increase by 1.5 per cent this year and 1 per cent next year.

The energy crisis has turned out to be less severe than feared – partly thanks to the mild winter. However, high inflation, rising interest rates and geopolitical risks continue to weigh on the global economy. This situation is compounded by the risk of disruption in the banking sector.

The KOF Business Situation Indicator for the Swiss private sector remained almost unchanged in March (see chart G 13). It was primarily the manufacturing sector that presented an obstacle to any improvement. The economy therefore failed to gain any real momentum.

KOF Director Jan-Egbert Sturm explains why the rescue of Credit Suisse was the right thing to do and assesses the macroeconomic consequences of its takeover by UBS.

In Switzerland – in contrast to Germany – low wages have managed to keep up surprisingly well with average wages. Research to date cannot conclusively explain the different trends in these two countries. In this article, KOF economist Kristina Schüpbach discusses various theories on this topic. One possible explanation is that Switzerland’s job market is more extensively covered by collective labour agreements than Germany’s.

Michael Graff, Head of the Research Division "Macroeconomic Forecasting", explains why inequality should be a key topic in economics and why redistribution and efficiency do not necessarily have to be opposites.

The business climate for the Swiss private sector deteriorated somewhat in February. Having risen sharply in January, the Business Situation Indicator could not quite sustain the previous month’s value in February (see chart G 3). Nevertheless, the economic situation in Switzerland in the first few months of this year is significantly more encouraging than it was in the autumn of 2022.

Although Swiss companies intend to curb their pace of investment in 2023, this slowdown does not point to a recession. According to the results of the semi-annual KOF Investment Survey, investment growth is likely to slow from a nominal 5.3 per cent last year to 3.9 per cent in the current year. Financial bottlenecks in particular are having a dampening effect on investment expectations.

The KOF Business Situation Indicator for the Swiss private sector, which is calculated from the KOF Business Tendency Surveys, rose significantly in January (see chart G11). While firms’ business had deteriorated in the autumn, a clearly positive trend was visible in January. The operating outlook for the coming months is more encouraging than it was before.

The proportion of firms that use various IT security technologies and have appropriate strategies and individuals responsible for cyber security has risen sharply over time. This trend is accompanied by a decrease in the percentage of firms that have security issues. The growing protection of digital infrastructure may therefore pay off in the form of fewer cyber attacks.

What would a sharp rise in the price of oil mean for Swiss companies? What are the specific ways in which such a shock would be transmitted to their economic activities? And which sectors would be particularly affected? A KOF survey shows that uncertainty and higher costs are the factors that weigh the heaviest because, according to the managers surveyed, they cause sales losses and price increases.

The research landscape in Switzerland is becoming more diverse again. Smaller firms and companies offering modern services in particular are increasingly conducting research and development (R&D). This innovative business climate is making the Swiss economy more resilient to crises such as COVID-19.

The KOF Business Situation Indicator rose slightly in December, having previously fallen twice in a row (see chart G 15). The recent recovery trend continued, with business activity improving in all sectors surveyed in December. Although the Swiss economy is operating in a challenging environment, it is not in crisis.

New survey data provide insights into the price-setting behaviour of Swiss companies. They shed light on price setters’ motives when they are reviewing, forming and adjusting their prices, as well as the reasons why they do not adjust their prices. In particular, they illustrate how prices are set so as to take account of the competing interests between customers and competitors.

In Europe, persistently high inflation and high energy costs are likely to continue to weigh on demand. In the United States, inflation is leading to a loss of purchasing power, while rising interest rates are dampening investment. The outlook for the Chinese economy has also darkened.

KOF expects interest rates to continue to rise this year in the euro area, the United States and Switzerland. It predicts that inflation will eventually fall but will remain high. The two economists Alexander Rathke and Pascal Seiler explain why in an interview.

The KOF Business Situation Indicator fell in November for the second month in a row (see Chart G 9). Although its decline is slowing, it affected all of the sectors surveyed in November. The Swiss economy is slowing down slightly.

Almost all of Switzerland’s major trading partners are currently grappling with the economic consequences of the Russia-Ukraine war and with self-inflicted problems. In this interview, Heiner Mikosch and Philipp Kronenberg from KOF’s International Forecasts Section analyse the current situation of the global economy

The spread of new digital technologies throughout the Swiss economy continues to increase. Robots, big data and artificial intelligence are being used not only to make internal processes more efficient, but also to develop and sell new products. This dual function keeps the Swiss economy competitive in the face of strong international competition.

The pharmaceutical sector has become the largest industry in Switzerland. Demand for its products is hardly subject to any cyclical fluctuations, and its declining prices have so far been more than compensated for by increases in production volumes. Employment in the sector has grown sharply, and pharmaceutical products contribute significantly to Switzerland’s goods trade surplus. However, the size of this industry also entails risks.

The KOF Business Situation Indicator for the Swiss private sector fell significantly in October (see chart G 8). Although business remains predominantly encouraging according to the KOF Business Tendency Surveys, the last time the indicator was lower than it is at present was in June 2021.

Much higher energy prices and the threat of recession abroad are depressing sentiment in the tourism industry. However, KOF expects to see growth in overnight stays thanks to the ongoing recovery from the pandemic and the strength of domestic tourism.

Politicians often act in a biased manner when allocating public funds. To date, however, it has only been possible to quantify strategic political bias on average. A recent analysis of government disaster relief allocation in response to hurricanes in the United States now shows that the extent of political favouritism varies greatly according to the decision-making situation. The issue is most pronounced for medium intensity storm events.

In her working paper entitled ‘Power Shifts, Emigration, and Population Sorting’ co-authored with political scientist Michaël Aklin, KOF economist Vera Eichenauer analyses the shift in power relations by using the example of the Swiss canton of Jura. In this interview she explains her key findings.

The KOF Business Situation Indicator recovered in September after suffering two consecutive declines. Although it rose slightly in September, it remains lower than it was in July. Firms still view their business situation as predominantly encouraging. Although the economy in Switzerland has cooled somewhat in recent months, companies continue to cope with this situation adequately.  

An economic stimulus package launched by the EU Commission is intended to revive Europe’s economy in the wake of the COVID-19 pandemic and, at the same time, modernise its infrastructure. But acute problems in the construction market as well as local planning restrictions could reduce the programme’s impact.

In August, KOF and the Neue Zürcher Zeitung (NZZ) newspaper surveyed economists at Swiss universities on the country’s pension system and the vote on the 'AHV 21' reforms. A majority of the 133 respondents would be in favour of the minimum conversion rate in the second pillar and the statutory retirement age following a rule-based automatic mechanism instead of the two parameters only being able to be adjusted by law.  

Central banks in Switzerland, the euro area and the United States are raising interest rates swiftly. In the long term, however, KOF expects to see lower rates return.

Inflation in Switzerland, the euro area and the US is at historic extremes; the upward trend in prices is gaining breadth.

New technologies are fundamentally changing the demand for labour in Switzerland and other countries. Is the Swiss workforce about to be replaced by robots, artificial intelligence and other digital technologies?

There is a renewed shortage of skilled labour in Switzerland. A recent study published in the Journal of Population Economics shows how computerisation is driving the Swiss economy’s demand for highly skilled workers. This trend is thus having a significant impact on what sort of people are immigrating to Switzerland.

Martin Wörter and Mathias Beck are examining the digital transformation as part of a research project funded by the National Research Programme (NRP). In this interview the two innovation economists explain why the coronavirus pandemic has accelerated computerisation and why Europe is still lagging behind the United States in terms of technology.

High-resolution aerial photographs – evaluated using machine-learning techniques – can be used to create success indicators for construction projects in Switzerland. Until now it has not been possible to measure whether planned construction projects have been implemented or not. The initial results of a KOF pilot project indicate that many construction projects have remained unfinished – especially in the wake of the 2012 second-home initiative.

Compared with female graduates in fields such as law and psychology, female STEM graduates have higher salaries one year after graduation, are more likely to have permanent jobs and are more likely to hold managerial positions. Even five years after graduation, four out of five female STEM graduates are in jobs that require a degree in their specialist field. Overall, female STEM graduates seem satisfied with their employment situation.

The KOF Business Situation Indicator fell in August for the second month in a row. Although the situation is more encouraging now than it was a year ago, it was noticeably more positive this spring and during the earlier summer months. The Swiss economy is clearly showing signs of slowing.

KOF economist Andrin Spescha, author of the book False Feedback in Economics, talks in an interview about the fundamental methodological problems of economics and possible solutions.

The coronavirus pandemic has clearly left its mark on Switzerland’s innovation landscape. More than a quarter of the firms surveyed by KOF have had to adapt their innovation processes significantly or even very significantly owing to the COVID-19 crisis. SMEs, start-ups and multinational corporations have been hit particularly hard. Just under half of these companies report that COVID-19 has meant a reduction in R&D and innovation investment and a decline in innovation collaborations.

Countries, as well as constituent states within countries, compete for high-income taxpayers. Tax competition and attempts to keep aggressive tax practices in check have increased in recent decades. However, even if low income-tax rates attract top earners, this does not necessarily mean that simple tax cuts alone will pay off. Typically, only a combination of measures leads to success.

The KOF Business Situation Indicator rose again in June, reaching a new high for the year to date. The manufacturing sector reckons that its business situation is significantly stronger than it was in the first five months of this year. Overall, the Swiss economy is currently robust.

This year’s investment outlook for Swiss firms has improved this spring compared with the autumn of last year. The results of the semi-annual KOF Investment Survey show that companies plan to increase their fixed capital investment by a nominal 7.5 per cent in 2022. These additional funds will primarily be allocated to construction projects. At the same time, environmental protection continues to gain in importance as an investment motive.

Using Swiss tax data, KOF economists Isabel Z. Martínez and Regina Pleninger are investigating the role of income and wealth over the life cycle as part of an ongoing research project. This article provides an initial insight into this work.

What sorts of firms have dropped out of R&D (research and development) and what consequences does this have for Switzerland’s economy? These questions are addressed both by the author and by the authors of the study ‘What Makes Firms Stop Doing R&D in Switzerland?’. This article focuses on the results of the first question: what types of companies have dropped out of R&D?

After rising sharply in the previous month, the KOF Business Situation Indicator almost managed to maintain its high level in May, falling just slightly (see Chart G 8). Although companies’ business expectations for the near future are still well above average, they are no longer as optimistic as they were in the autumn of last year. The Swiss economy is in good shape, and its momentum is likely to slow in an orderly fashion.

In his book ‘False Feedback in Economics’, KOF economist Andrin Spescha critically examines the methodological and philosophical foundations of economics and other social sciences.

The world is growing older. According to the World Bank, the percentage of the global population aged 65 and above nearly doubled from 1960 to 2020. While developed countries are struggling with the consequences of population ageing, less-developed countries still stand to benefit. But how could population ageing spur economic growth in less-developed countries, and how can policymakers maximise its benefits?

The number of company bankruptcies in Switzerland continued to rise in March and, after a two-year low, has exceeded the pre-crisis levels of 2019 for the first time. Although this increase is broadly based across sectors and regions, a wave of bankruptcies remains unlikely. The boom in new business start-ups has flatlined recently.

As far as Swiss companies are concerned, the positive impact of their recovery from the pandemic is outweighing the adverse effects of the war in Ukraine. The KOF Business Situation Indicator rose in April to its highest level since recovering from the financial crisis in 2010/11.

At present, the Swiss National Bank (SNB) is having to contend with above-average inflation, the economic recovery from the COVID-19 pandemic, and the considerable uncertainty arising from the war in Ukraine. In March, therefore, KOF and the Neue Zürcher Zeitung (NZZ) newspaper surveyed economists on their assessments of inflation and monetary policy in Switzerland.

A special survey conducted by KOF examines the wage expectations of Swiss companies from today until one year from now. A majority of firms in almost all sectors expect to see wage growth of 1 per cent or more.

Prices in the euro area and especially in the United States have risen sharply recently. Inflation momentum has also picked up in Switzerland. However, KOF expects the upward trend in prices in Switzerland to weaken towards the end of the year.

Russia’s invasion of Ukraine has lowered Swiss companies’ expected wage growth and, at the same time, raised their inflation forecasts. Small and medium-sized enterprises in particular, as well as companies in the manufacturing sector, expect to see higher prices in the long run. In purely arithmetical terms, the information provided by these firms translates into negative real wage forecasts, which are even more negative than they were before the war in Ukraine.

The continuing rise in prices is forcing the central banks in the United States and Europe to reconsider their highly expansionary monetary policies. The Swiss National Bank will probably only reverse its policy stance once central bankers in the euro area have implemented their first interest-rate hike.

The business fortunes of companies in Switzerland deteriorated significantly in March, with the financial and insurance services sectors primarily responsible for the less encouraging situation (see Chart G 9). The changes in the other sectors of the economy in March were comparatively small.