KOF Business Situation Indicator: retail sector with a new lease of life, otherwise hardly any change in companies’ fortunes

Broken down by sector, the performance of the retail industry stands out especially (see T 1). It is truly experiencing a new lease of life. Companies reckoned that their business situation had almost returned to a satisfactory level in June. Although customer footfall is still significantly lower than it was this time last year, excessive inventories have been partially reduced.

The change in the business situations of the other sectors in June was relatively modest. The Business Situation Indicator for manufacturing industry continued to fall slightly. However, incoming orders are no longer declining as sharply as in the previous month, and companies expect their orders to stabilise in the near future.

Business in the construction industry and at project engineering firms also saw little change in June. Firms in both sectors hope that demand over the coming months will at least fall more slowly than it has recently. However, they are already highly dissatisfied with the current volume of orders on hand. The Business Situation Indicator for the financial and insurance services sector is declining slightly. These institutions expect demand for their services to remain stable over the coming months. However, the prices for their services have come under pressure.

Viewed from a geographic perspective, the Business Situation Indicator rose in the majority of the main regions (see G 8). The Lake Geneva region, Ticino, the Zurich region, Northwestern Switzerland and Espace Mittelland all saw increases. On the minus side, however, are Central Switzerland and Eastern Switzerland.

The KOF Business Situation Indicator illustrates companies’ current business situation. 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 (see G 9). The KOF Economic Barometer remained below its long-term average throughout the year, and business activity gradually weakened. At the beginning of 2020 the outlook for the Swiss economy was more upbeat. However, the COVID-19 pandemic has led to a sharp slowdown in economic activity. Although the situation has now stabilised, the growth prospects for the Swiss economy remain modest.

Explanation

Chart G 7 shows the KOF Business Situation Indicator across all sectors included in the survey. The business situation of sectors that are only surveyed quarterly is kept constant in the interim months.

Chart G 8 shows the business situation in the main regions as defined by the Swiss Federal Statistical Office. The regions are coloured differently depending on their business situation. The arrows within the regions indicate the change in the situation compared with the previous month. An upward-pointing arrow means, for example, that the situation has improved compared with the previous month.

The Business Situation Indicator in the KOF Economic Clock (Chart G 9) is plotted against the KOF Economic Barometer. The Indicator reflects the current business 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 both above average. During the slowdown phase the situation is above average and the prospects are below average. At the bottom of the economic cycle the situation and prospects are both below average. Ideally the chart runs through the quadrants in a clockwise direction.

The KOF Business Situation Indicator is based on more than 4,500 reports from firms in Switzerland. Companies in industry, the retail sector, construction, project engineering, and financial and insurance services are surveyed monthly. Businesses in the hospitality, wholesale and other services sectors are surveyed during the first month of each quarter. These firms are asked, among other things, to assess their current business situation. They can rate their situation as either ‘good’, ‘satisfactory’ or ‘poor’. The net balance of their current business situation is the difference between the percentages of ‘good’ and ‘poor’ responses.