What Is the KOF Economic Barometer?
The KOF Economic Barometer is a composite indicator that provides a reliable reading on the direction of GDP growth for the Swiss economy compared with the same quarter a year earlier. The KOF Economic Barometer is based on a multi-sectoral design with three modules: core GDP, construction and banking. The barometer has a complex structure because it bundles as many as 20 individual indicators in several steps. It is published monthly by the KOF Swiss Economic Institute.
Understanding KOF Economic Barometer
Although the KOF Institute cautions that no conclusions can be drawn about the level of the GDP growth rate on the basis of the KOF Economic Barometer, the barometer is closely followed by participants in the financial markets. Barometer readings that are higher than expected may have the effect of strengthening the Swiss franc, while lower than anticipated readings may weaken the Swiss franc.
History of the KOF Economic Barometer
The KOF Swiss Economic Institute has published the KOF Economic Barometer since the 1970s. The methodology was changed in 1998 and in 2006. The most recent revisions were made in 2014. The current version of the Barometer is based on a reference series computed by KOF. The series is composed of the month-on-month growth rate of Switzerland’s GDP based on the quarterly breakdown of the Swiss Federal Statistical Office’s data by the Swiss State Secretariat for Economic Affairs.
The concept of the barometer is to indicate the stance of the Swiss business cycle, as captured by our reference series, as early as possible.
Calculating the KOF Economic Barometer
The present database consists of more than 400 variables. Two criteria are used to decide which of these variables are included in the barometer calculation. First, the variables must influence the Swiss business cycle. Second, the cross-correlation with the reference series must show a combination of lead and minimum strength.
Based on these variables, an algorithm is repeated every fall. Over 200 selected variables are typically included, but this changes from year to year. In this way, the Barometer "learns" and becomes more flexible.
In March 2018, according to SNBCHF.com, a group that provides insights into Swiss financial markets and the economy, the KOF Economic Barometer fell by 2.4 points to a new reading of 106.0. However, according to the site, this reading is still above the long-term average and is an indicator that the Swiss economy should continue to grow at above average rates.