KOF Economic Barometer Shows Switzerland Strengthening

Alan Penny

30 December 2019

3 min read

Switzerland flag

  • KOF measure of 219 different indicators
  • Show signs of Switzerland strengthening during the course of the year

During the early hours of Monday, the KOF Economic Barometer was released in Switzerland. This is a measure of the direction of the Swiss economy over the next six months. Being a forward-looking indicator, it catches a lot of attention by those who trade Swiss equities, Swiss bonds, and of course the Swiss franc.

This gives a broad explanation of how Switzerland is performing and therefore is worth paying attention to 

The KOF Economic Barometer combines a reading of 219 economic indicators related to banking confidence, production, consumer confidence, the exchange rate of the Frank, money supply, interest rate spreads, stock market prices, housing, and new orders. This gives a broad explanation of how Switzerland is performing and therefore is worth paying attention to.

The announcement

The reading of 96.4 on Monday was stronger than anticipated. The forecast was for a reading of 94.6, showing that the Swiss economy is in fact starting to show signs of life again. It is worth noting that the previous release was revised downward from 93.0 to 92.6. This shows that although Switzerland gave back a bit from the previous reading, the net change was much more positive than anticipated.

The KOF Economic Barometer reached the previous year’s closing level. As it had fallen during most of the year, Switzerland has completely recovered in terms of this announcement. The fact that it rose by 3.8 points in December shows strength yet again, with quite a bit of the increase coming from indicators in the manufacturing sector.

There has also been an increase in foreign demand for Swiss assets, just as private consumption seems to be picking up. It seems that within the manufacturing sector the electrical industry is a main driver, just as some commodities such as metal and wood seem to be doing better.

Perhaps more telling is that in the goods-producing sectors, indicators show signs of recovery. Switzerland has been mired in a lot of the economic contraction that seems to be affecting the continent in general. This could be the beginning of positivity coming out of the Alps as inventory is starting to show signs of recovery in both manufacturing and construction.

Showing signs of life

The main take away is that the Swiss economy seems to be showing signs of life. The European Union is also starting to show some signs of recovery. That goes hand-in-hand as the Swiss send 85% of their exports into the EU. As goes their biggest customers, so goes the Swiss economy. This should mean farewell for Swiss equities and possibly even the Swiss franc, in preparation for the Swiss National Bank stepping away from the idea of so much quantitative easing.

This is a major killer of currencies and negative-yielding bonds. Switzerland may be thought of as a place to find value in multiple assets. However, this should be thought of as a longer-term trend, not a short-term trade. Switzerland may be getting ready to make a longer-term move.

Written By
Alan Penny

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