KOF Business Situation Indicator: storm clouds are gathering

The March survey results are based on responses received between 1 and 20 March. The majority of respondents therefore replied after the coronavirus outbreak in Europe, but before the Swiss Federal Council had declared an ‘exceptional situation’ on 16 March. Nevertheless, the data show the clear impact of the pandemic.

The business situation deteriorated in almost all sectors surveyed in March. The situation indicator for manufacturing fell sharply. This more than wiped out the improvement achieved in the first two months of this year. Whereas the business situation remains fairly stable for domestically oriented companies, it is deteriorating sharply for export-led firms. On the whole, the responses regarding the business situation became increasingly negative over the course of the month. However, the situation is holding up quite well for producers of food and beverages, chemicals and pharmaceuticals.

The Business Situation Indicator also declined in the construction industry and for project engineering firms. However, the downward trend did not intensify over the course of the month. The business situation in financial and insurance services was also less encouraging than in the previous month. The Business Situation Indicator for the retail sector remained stable in March after declining slightly in the previous month.

However, there was scepticism above all with regard to future developments. Demand forecasts have been revised sharply downwards in all sectors. Pessimism was more pronounced the later in the month the participating firms responded.

The deterioration in the business situation is affecting all major FSO regions with the exception of Central Switzerland, where the situation had worsened in the previous month. The situation indicator is declining in the other regions: Espace Mittelland, the Lake Geneva region, Northwestern Switzerland, Eastern Switzerland, Ticino and the Zurich region.

The KOF Business Situation Indicator illustrates the current economic situation of companies. The KOF Economic Barometer, on the other hand, is an indicator of economic prospects. The Economic Clock shows that the economy was under pressure in 2019. The KOF Economic Barometer remained below its long-term average throughout the year and the business situation gradually cooled. By the beginning of 2020 the outlook for the Swiss economy had started to improve. Once the coronavirus pandemic appeared, however, the prospects deteriorated again.

Explanation

Chart G1 shows the KOF business situation across all sectors included in the survey. For sectors that are only surveyed quarterly, the business situation is kept constant in the interim months.

Chart G2 shows the business situation in the major regions as defined by the Swiss Federal Statistical Office. The colour of each region reflects its individual business situation. The arrow within each region indicates the change in the situation compared with the previous month. An arrow pointing upwards, for example, indicates that the situation has improved compared with the previous month.

In the KOF Economic Clock (Chart G3) the Business Situation Indicator is plotted against the KOF Economic Barometer. The Business Situation Indicator reflects the current economic situation, while the barometer is a leading indicator of changes in activity. The clock can be divided into quadrants. During the recovery phase the business situation is below average but growth prospects are above average. At the peak of the economic cycle the situation and prospects are above average. During the downturn the situation is above average but the prospects are below average. At the bottom of the economic cycle the situation and prospects are below average. Ideally the chart runs through the quadrants in a clockwise direction.

The KOF business situation is based on more than 4,500 reports from companies in Switzerland. Firms in the industrial, retail, construction, project engineering, financial services and insurance sectors are surveyed once a month. Businesses in the hospitality, wholesale and other services sectors are surveyed in the first month of each quarter. These companies are asked, among other things, to assess their current business situation. They can rate their situation as being ‘good’, ‘satisfactory’ or ‘poor’. The net current business situation represents the difference between the percentages of ‘good’ and ‘poor’ responses.