KOF Business Situation Indicator: further improvement in the business situation

In August the Business Situation Indicator performed well in almost all sectors under review. The improvement from the previous month continued in the manufacturing, construction, project engineering and retail sectors. In financial and insurance services, on the other hand, the indicator shed some of its growth from the previous month. Nevertheless, the overall signs point to a fairly broad-based improvement. However, the recovery from the COVID-19 recession still has a long way to go.

As in the previous month, the Business Situation Indicator rose in most of the main regions. Ticino and Central Switzerland reported a significant increase. Business was stable to slightly positive in the Lake Geneva, Eastern Switzerland and Espace Mittelland regions. The indicator trended slightly lower in the regions of Zurich and Northwestern 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. 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. There are now signs of an economic recovery in the coming months.

Explanation

Chart G 9 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 10 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 11) 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.