Switzerland's leading growth indicator dropped to its lowest level in over two years in November, suggesting the economy might dip into recession and potentially increasing pressure on the Swiss National Bank to do more to weaken the franc. The KOF economic barometer, which points to the expected performance of the Swiss economy in about six months' time, fell to 0.35 points in November from a revised 0.75 points in October, well below a Reuters poll forecast for 0.63 points.
"If advocates for further SNB forex intervention needed any more economic data support, they got it today," Swissquote analyst Peter Rosenstreich said in a note, calling the KOF figure "dreadful". "Today's reading indicates that the downward momentum in the Swiss economic is picking up pace and the strong Swiss franc is clearly not helping the situation."
A surge in the Swiss franc as investors have sought a safe haven from the escalating eurozone debt crisis has weighed on company profits, squeezed exporters' margins and piled pressure on the country's tourism sector. To try to stave off the threat of recession, the Swiss National Bank (SNB) set a cap of 1.20 francs to the euro on September 6, but speculation has risen that it might shift the cap towards 1.30 per euro to further weaken the currency.
SNB chairman Philipp Hildebrand reiterated earlier this week that the franc was still "at a high level" and said the Swiss economy was entering a difficult phase with a low or possibly even a slightly negative rate of growth. The Swiss franc weakened slightly against the euro after the data was released but later stabilised at 1.227 per euro. It has traded between 1.20 and 1.25 since the cap was set in September.
The KOF echoes other recent data with the Swiss ZEW investor sentiment index showing the majority of financial market experts see the economy deteriorating on a six-month horizon. "At current confidence and activity indicator levels, a double-dip scenario cannot be excluded any more for the Swiss economy," ING analyst Julien Manceaux said. "There is no doubt that gross domestic product growth will be negative in the fourth quarter."
Sarasin economist Ursina Kubli said the KOF fall was bigger than expected but not enough to prompt the SNB to move. "Raising the cap is still an emergency instrument for the Swiss National Bank," she said. "Today's drop in the KOF will not be enough to motivate the SNB to lift the cap."