KOF Business Situation Indicator: Swiss Economy Weakens but Companies Expect Improvement

KOF business situation indicator Weakened economy, but companies expect improvement

02/16/2024 Source: Press release 3 min reading time

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The KOF business situation indicator for the Swiss private sector, which is calculated from the KOF economic surveys*, cooled down again at the beginning of the year. Above all, weak foreign demand is putting a strain on the export economy. However, there is a silver lining on the horizon: companies are much more confident about the next six months than before.

According to KOF economic surveys, weak foreign demand is currently putting a strain on the export industry. But improvement is in sight.

(Image: bnenin – stock.adobe.com / KOF)

Manufacturing industry complains about lack of demand

The KOF business situation indicator points in different directions in the individual economic sectors. The business situation in the manufacturing sector is once again developing unfavorably. More than half of the companies in this area are currently complaining about a lack of demand. The continued strengthening of the Swiss franc is a potential negative factor. However, this pressure is nowhere near as strong as, for example, in the first months of 2015, after the Swiss franc’s lower limit against the euro was lifted. In addition, companies are currently more confident about their export prospects than they were in the fall.

In addition to manufacturing companies, wholesalers, the hospitality industry and financial and insurance service providers are also reporting a setback to their rather good business situation. The business situation in the construction industry, in the project planning sector and in the retail sector has hardly changed. The business situation for other services is improving slightly.

Companies have become more confident about the expected business development in the next six months. Expectations are more positive than before, particularly in the manufacturing sector and among other service providers. Wholesalers are also shedding some of their skepticism. In contrast, the retail sector and financial and insurance service providers have become more cautious.

Companies expect an increase in gross wages of less than 2 percent

Although companies intend to continue to hire additional staff, they are planning to do so much less frequently than at the beginning of 2023. However, companies are still reporting difficulties in finding suitable staff. Complaints about staff shortages are no longer quite as widespread as they were at the beginning of 2023. However, compared to autumn 2023, the problem did not ease further in January in any of the sectors surveyed.

Companies assume that gross wages will rise slightly less rapidly between now and a year from now than before. However, the barely noticeable decline in expectations from 1.9 percent wage increase in October 2023 to 1.8 percent in January 2024 follows a downward trend throughout 2023. In January 2023, companies expected a wage increase of 2.3 percent for the upcoming one-year period.

Price signals inconsistent

In line with the slightly downward adjustment in wage expectations, companies are anticipating lower general inflation in the next twelve months than before. The decline in expectations is more pronounced here than in wages. In October, companies expected inflation to be 2.4 percent over the next twelve months. In January they expected an inflation rate of 1.9 percent for the following twelve months.

However, companies’ plans for the price development of their own services do not correspond to the direction of inflation expectations for general consumer prices. Companies – and in particular the other services, manufacturing and construction industries – are again planning for price increases in their sales price calculations more frequently than in the entire second half of 2023. In this respect, it is not certain that the price increase from Swiss producers will subside in the short term. (new)

* The results of the KOF economic surveys from January 2024 included the answers from around 4,500 companies from the manufacturing sector, construction and the most important service sectors. This corresponds to a response rate of around 62 percent.

(ID:49917155)

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2024-02-16 21:01:49
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