KOF business situation suffers a setback

Companies’ expectations regarding the performance of their business in the coming six months were almost as positive as they were in the previous month. However, uncertainty about the business outlook is increasing. The performance of many parts of the Swiss economy during the first month of the war in Ukraine was fairly robust.

The sharp fall in the Business Situation Indicator is mainly due to the financial and insurance services sectors, where the indicator is clearly on the decline. Although these institutions continue to assess their business situation as predominantly encouraging, the level of the situation indicator is now below average on a ten-year comparison. The sub-group of banking institutions is sceptical about the future performance of their business with foreign customers. The Business Situation Indicator for the sectors associated with building activity – project engineering and construction – has fallen slightly in both cases but remains above January’s levels. The overall business situation in manufacturing is still virtually unchanged. The order books of both domestically-led and export-driven firms remain fairly full. However, demand in the near future is unlikely to grow as strongly as it has recently. Retailers are again reporting a more encouraging business situation and intend to purchase more goods themselves than they did previously (see Table T 1).

The Business Situation Indicator is falling across all regions as defined by the Swiss Federal Statistical Office (FSO). This is particularly the case in the Zurich region and Northwestern Switzerland. The decline is less pronounced in the Lake Geneva region, Ticino, Espace Mittelland and Central Switzerland. The Business Situation Indicator for Eastern Switzerland has remained almost unchanged (see Chart G 10).

The KOF Business Situation Indicator highlights companies’ current business situation. The KOF Economic Barometer, on the other hand, is an indicator of the economic outlook. The Business Cycle Clock shows that the economy was abruptly slowed by the pandemic in April 2020 (see Chart G 11). After a rather disappointing start to 2021, the Swiss economy subsequently recovered. Although this recovery continued in the first few months of 2022, it is now being hampered by Russia’s invasion of Ukraine.

Explanations of Charts:

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 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 indicates that the situation has improved compared with the previous month.

The Business Situation Indicator in the KOF Business Cycle 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 outlook are both below average. Ideally the chart runs through the quadrants in a clockwise direction.