GDP forecast based on semantic business cycle identification

Release 2020-08-20
    Figure 1: Business cycle indicator and Swiss GDP with forecast  


Forecast update. COVID-19 knocks down the «KOF Surprise Indicator» to an all-time low of -0.13 (2019 Q4: -0.047) implying a significant 5.1 percent drop in GDP year-on-year in 2020, second quarter. This decrease compares to -2.7 percent in the worst quarter of the financial crisis when the «KOF Surprise Indicator» logged its previous negative record (-0.079).
«home   Table: Swiss real gross domestic product with forecast  

Year-to-year growth (%) of Swiss real gross domestic product (GDP)
fitted / forecast
standard error
seco estimates*

Sources: Own calculations, forecast for 2020(2), fitted values otherwise, *seco releases (left: March 3, 2020, right: June 3, 2020).

Sample: 2000 (2) - 2020 (1), Forecast: 2020 (2), SECO data

Note: Forecast obtained by best nowcasting model.

Nowcast. To nobody's surprise, this year's second quarter will not only be remembered for the prolonged shutdown of the economy and public life at large but also for its consequential, unprecedented fall in production activity. The question still remaining though is how deep the drop actually was.
The KOF surprise indicator, which has repeatedly stood the test of time, provides a first answer. In the second quarter, it crashed to -0.13 from -0.047 (2020, first quarter). To put this new value in perspective, the lowest value so far on record was -0.079 when in the second quarter of 2009 the Swiss economy seemed to be in free fall in the midst of the great financial crisis.
    Outlook. After the shutdown in the second quarter had brought down infection rates, transmission of the new Sars virus seems to be on the rise again. This unfortunate development also raises the risk of yet another forced halt of the economy. On the up side, the Swiss government has so far managed to keep the economic damage in check by carefully targeted and apparently effective stimulus.  
    Recent figures show that the generous government support exceeds corporate demand for financial aid resutling federal fiscal deficit estimates to amount to less than half what had been expected in Spring. This update, therefore, is consistent with the predicted rather moderate -5.1 percent decline in value added growth.  
    The prospects for the next couple of months hinges on two basic issues of which only the scond can be controlled. First, the recovery must not be killed in its infancy by a renewed surge in infection rates. Second, the Swiss federal government must further provide sufficient stimulus and not even think of austerity.  

Special feature: Squaring central bank indpendence, fiscal stress and CB affluency. Swiss public finances have entered a period of serious stress with double-digit deficits building up. At the same time, Swiss National Bank's coffers remain awash with cash getting them envy looks from lawmakers and the public at large. In this note, I explain why a new strategy for dealing with central banks's profits and which involves a negative poll tax is needed in order to secure central bank independence and to meet fiscal goals (in German). Read on»

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Standard error of regression*
Business cycle data download
History 2020-02-19 release
  2019-08-14 release
  Complete release history
  First release
Next release 2020-11-13
    *Standard error of regression refers to baseline model published in the first release.  

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