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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.

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 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 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.

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.

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.

The latest KOF Business Situation Indicator for the Swiss private sector fell very slightly in February (see G 12). Companies remain virtually unchanged in their confidence about business over the coming six months. Uncertainty about business going forward is also decreasing. The Swiss economy is currently performing well.

KOF Director Jan-Egbert Sturm talks in an interview about the future of international trade, the lessons to be learned from the coronavirus crisis, and Switzerland’s competitiveness.

Two major sporting events are on the agenda this year: the European Football Championships and the Olympic Games in Tokyo. The sporting organisations behind them, UEFA and the IOC, both have their headquarters in Switzerland. Consequently, these competitions also have an indirect economic impact on Switzerland's gross domestic product.

In April of this year, KOF and Switzerland’s Neue Zürcher Zeitung (NZZ) newspaper surveyed economists on the subjects of state aid during the coronavirus crisis and the future of public finances. There are hardly any economists who think that the debt brake should be applied very rigorously. There is also agreement among the 167 survey respondents that cuts in education, research and social security should be avoided. The level of government support is generally not considered to be too high.

The Swiss economy reported a significantly better business situation in April than in the previous month (see G 14). The upward trend in the Business Situation Indicator, which has been ongoing since the beginning of the year, is thus continuing at an accelerated pace. Firms are also much more confident about developments over the coming months than they were in the previous month and at the beginning of this year.

Far fewer companies went bankrupt last year than would have been expected in normal times. This is due to the legal and economic support measures introduced. A sudden wave of bankruptcies is still not expected.

About 60 per cent of the businesses surveyed in January claimed that the pandemic had reduced their revenue last year. The hospitality industry has been hit particularly hard: annual revenues here are likely to have fallen by about 37 per cent in 2020, with almost one in three businesses seeing a drop of more than 50 per cent. Fear of bankruptcy increased again in all sectors in January.

The KOF Business Situation Indicator fell in January after having risen slightly at the end of 2020 (see G 3). While the business situation in the goods-producing sectors is stable to positive, some service industries in particular are struggling. The pandemic is thus driving a wedge between the trends in different sectors of the economy.

The KOF Business Situation Indicator reported a minor setback in November. After rising in October, it has recently fallen slightly (see G 17). Although coronavirus restrictions have been tightened in recent weeks, companies are currently in a better situation than they were during the summer months.

Following a sharp rise in the number of infections in the autumn, the Swiss government and the cantons have taken further measures to combat the pandemic. Both factors are likely to have contributed to the fact that Swiss people have again adjusted their consumption. This also affects the measurement of inflation, albeit not as much as during the lockdown in spring. This is illustrated by an updated comparison of the national consumer price index (LIK) with an alternative COVID price index.

The Christmas trade is of great importance for the retail sector. November and, even more so, December are usually the months that generate the highest sales of the year. KOF has therefore taken the pulse of the retail sector. Following a swift recovery in Switzerland and neighbouring countries after the slump in spring, confidence in November fell only slightly in Switzerland but plummeted in Austria.

Social distancing is key to the containment of the coronavirus pandemic. The mobility of the population provides important indications of whether the relevant measures and recommendations are being followed. Analysis of mobility data in Switzerland shows clear differences between the first and second waves. In addition, there are indications that mobility and infection rates influence each other.

The coronavirus-specific questions asked in the October Business Tendency Surveys revealed that around 10 per cent of the firms surveyed said that they considered their survival to be at risk. In the hospitality industry this figure is as high as one in three companies, which is also where the pandemic will have the greatest impact on annual sales. In general, smaller firms are more afraid of bankruptcy than larger ones, and there are also regional differences.

After the labour market had deteriorated sharply in the spring, it recovered over the summer - thanks in particular to short-time working. However, the outlook for the winter suggests that a second wave of unemployment is to be expected. The increase in nominal wages next year is likely to be the lowest in 80 years.

The KOF Business Situation Indicator has remained almost stagnant. Whereas it rose sharply in July and August, the indicator hardly increased at all in September (see G 8). After the economy noticeably improved in midsummer, this positive trend is now faltering. The economy is in a precarious position.

The KOF Business Situation Indicator rose in August for the second month in a row. However, this increase was significantly lower than the one in the previous month. Swiss companies’ business is improving only very gradually.

Business in the retail sector improved considerably in July. The results of the KOF Business Tendency Surveys show that the situation is now as satisfactory as it was before the pandemic. Were the events of this spring just a brief aberration for the retail sector?

The coronavirus crisis substantially changed consumer behaviour during the lockdown. This can lead to a situation where the prices of consumed goods over time differ significantly from those in Switzerland’s national consumer price index (LIK). In order to estimate these differences, KOF has linked the official LIK data with card transaction data and constructed an alternative COVID price index. This suggests that inflation has been underestimated since the beginning of the coronavirus crisis.

COVID-19 is causing the economy to change much faster than usual. To capture these rapid changes, a team of researchers has developed new economic indicators based on Google search trends. The indicator for the perceived economic situation has fallen more sharply in recent weeks than during the financial crisis. Some indicators of private consumption have already reached pre-crisis levels, while others have not yet recovered.

Although large sections of the Swiss economy have got off to a good start in 2020, the coronavirus pandemic is stifling any optimism. The manufacturing, hospitality and retail sectors have come under particularly intense pressure.

Instead of presenting a forecast, this spring KOF has published three scenarios that show how the economy might potentially perform going forward. The baseline scenario assumes a recession in the first half of the year, while the negative scenario predicts a longer-lasting slump. The mild scenario is becoming increasingly unlikely.

The KOF Business Situation Indicator fell significantly in March, plunging to its lowest level since spring 2017. Companies are particularly concerned about developments in the near future: demand forecasts are being cut sharply in all of the sectors surveyed. The coronavirus pandemic is casting its shadow over the Swiss economy.

The weak global economic climate coupled with the low propensity to invest abroad held back the Swiss export economy last year. Following also the rapid outbreak of the Coronavirus at the start of the year, this caused major uncertainty for exporters.

According to the results of the semi-annual KOF Investment Survey, investment activities in Switzerland are set to slow down further this year. The uncertain international environment has put a brake on expenditure growth. Nevertheless, investment in environmental protection and compliance with commercial law requirements has clearly acquired greater importance.

Five years after the suspension of the minimum exchange rate of the Swiss franc, the manufacturing industry is still complaining about lower competitiveness on the eurozone markets and the excessive strength of the Swiss franc compared to the euro. For the majority of companies, the advantages and disadvantages of the negative interest rate policy balance each other out. However, as a special KOF survey shows, financial institutions have a very different view on the matter.

In 2019, Swiss companies intend to increase investment activities by around 1%. This is the result of the semi-annual KOF Investment Survey. Compared to the preceding years, this figure is rather low. The slowdown is predominantly due to construction investments.

Whilst the Swiss economy remains robust overall, its growth rate will slow this year to 1.6 per cent. Gross domestic product (GDP) is then forecast to rise by 2.1 per cent in 2020. Private consumption will provide a significant boost to the economy over the forecast period. Unemployment will remain low thanks to solid economic growth.

Total investment in Switzerland continues to rise in 2018, as shown by the results of the semi-an-nual KOF Investment Survey. Surveyed companies intend to increase investment activities by around 8% this year. A significant part of the planned investments will be funnelled into the expan-sion of existing capacities.

‘Unemployment in Switzerland drops to 2008-levels’ - headlines like this have done the rounds after the Swiss State Secretariat for Economic Affairs (SECO) presented its latest unemployment figures at the beginning of the month. Regrettably, however, the situation on the labour market is not (yet) as rosy as it was in early 2008. The new unemployment figures are not comparable with the historic figures.

At least since the removal of the exchange rate floor, there has been much speculation regarding retail tourism by Swiss residents abroad. The survey concerning payments and cash withdrawals carried out by the Swiss National Bank (SNB) enables both structural and contingent conclusions to be drawn concerning the payment practices of Swiss residents both at home and abroad. Half of transactions paid for with Swiss credit cards abroad are concluded online.