KOF Business Situation Indicator: business situation virtually unchanged but shortage of intermediate products worsens

While the business situation had improved across all sectors of the economy in the previous month, the trend in June was more varied (see T 1). The upturn in manufacturing continued, albeit at a slower pace. Business in the construction and project engineering sectors, which are linked to building activity, remained virtually unchanged; the Business Situation Indicator for the construction sector fell slightly. Construction firms are now looking to pass on more price increases to customers. The Business Situation Indicator for the retail sector and for financial and insurance services was also trending downwards, although it had risen significantly in each of these sectors in the previous month. In general, the changes in the Business Situation Indicators for the various sectors – whether positive or negative – tend to be small compared with the changes in the first five months of this year. This, together with the divergent trends evident in these sectors, suggests a certain slowdown in the recovery.

Construction and manufacturing firms continued to complain about widespread shortages of intermediate products. This problem deteriorated further compared with the previous month: the proportion of construction firms complaining about such shortages rose from 50 per cent in May to 58 per cent in June. In manufacturing this proportion increased from 51 per cent to 54 per cent.

Regionally, the picture was not uniform either. Business activity improved significantly in Ticino and modestly in Central Switzerland. The Business Situation Indicator fell slightly in the Lake Geneva region, the Zurich region and Northwestern Switzerland. The business situation in Espace Mittelland and Eastern Switzerland changed only slightly (see G 16).

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 abruptly slowed by the pandemic in April 2020. After a rather disappointing start to 2021 the Swiss economy is now on an upward trajectory, although this month the upward trend is not quite as pronounced as it was previously.

Explanation

Chart G 16 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 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 17) 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, financial services and insurance 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.