KOF Business Situation Indicator: business activity bounces back

The business situation improved across most sectors in December (see T 3). Business in three of the sectors surveyed – manufacturing, construction and retail – was more buoyant than in November and remained stable in the project engineering sector. Only in financial and insurance services was the situation in December not quite as encouraging as in the previous month. Overall, the survey results suggest that companies expected to be able to deal with the restrictions imposed in November. The business of export-driven manufacturing firms also improved significantly, which meant that no marked increase in adverse effects was seen in international trade either. However, these data do not include the impact of the further escalation of the pandemic or the Swiss Federal Council’s tightening of restrictions in the second half of December.

From a regional perspective the Business Situation Indicator also rose in most areas (see G 12). Specifically, business activity improved in Central Switzerland, Ticino, Eastern Switzerland and Espace Mittelland and remained virtually unchanged in Northwestern Switzerland. The Zurich and Lake Geneva regions failed to keep pace with what was generally a positive trend.

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 13). 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 encouraging. However, the COVID-19 pandemic caused a sharp slowdown in economic activity in spring. Having improved significantly during the summer months, the recovery continued towards the end of the year but was slightly more fragile.

Explanation:

Chart G 11 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 12 shows the business situation in the main regions as defined by the Swiss Federal Statistical Office. The regions are coloured differently to reflect their business situation. The arrows within the regions indicate the change in the situation compared with the previous month. An arrow pointing upwards indicates that the situation has improved compared with the previous month.

The Business Situation Indicator in the KOF Economic Clock (Chart G 13) 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.