Nordic & Swiss Economics

Swiss KOF Economic Barometer (Oct.)

Nordic & Swiss Data Response
Written by Melanie Debono

October’s rise in the Swiss KOF Economic Barometer was not enough to offset the previous month’s drop and the series still suggests that activity will remain subdued into 2020.

Rebound in sentiment still consistent with weak GDP growth

  • October’s rise in the Swiss KOF Economic Barometer was not enough to offset the previous month’s drop and the series still suggests that activity will remain subdued into 2020.
  • Given the Barometer’s relationship with the euro-zone Composite PMI (see Chart 1), which edged up in October, the increase in the indicator, from a downwardly-revised 93.1 in September to 94.7 in October, was slightly sharper than we, and the consensus, had expected. But while the pick-up, was a bit of a relief, the bigger picture is that the indicator remains well below its long run average.
  • According to the press release, sentiment deteriorated once again among manufacturing firms, particularly within those sectors most exposed to Germany’s industrial recession e.g. metals, vehicles. However, this was more than offset by increases in other sectors, including banking and insurance.
  • On past form the KOF still points to annual GDP growth of below 1%y/y over the coming quarters (see Chart 2), which is broadly consistent with the economy flat-lining in quarterly terms. For what it’s worth, after expanding by 0.3% q/q in Q2, we think that the economy shrank in Q3 (data due 28th Nov.)
  • Anaemic GDP growth will stoke fears of deflation at the SNB, particularly if, as we expect, the franc rises in the coming months as global risk appetite fades. We expect data due on Friday to show that inflation fell into negative territory in October for the first time since November 2016 and forecast it to average
    -0.3% in 2020. Against this backdrop, while the recent fall in the franc has given the Bank some breathing space (see Chart 3), it will have to maintain its easing bias.

Chart 1: KOF Economic Barometer & Euro-zone PMI

Sources: Refinitiv, Markit, Capital Economics

Chart 2: KOF Economic Barometer & Swiss GDP

Chart 3: SNB Sight Deposits & Franc/Euro

Sources: Refinitiv, Capital Economics

Sources: SNB, Refinitiv, Capital Economics


Melanie Debono, Europe Economist, +44 20 3750 0991, melanie.debono@capitaleconomics.com