Switzerland: The Kof is Rising Further

The Kof economic barometer rose to 1.98 in June after a downwardly revised 1.94 (from 1.96) in May, slightly below Citigroup Research forecast (1.99) and the consensus (2.0). The June’s rise primarily reflects a gain in the “Export to EU” component, thanks mainly to stronger order books’ assessments and exports in June.

However, the “industrial activity” component of the indicator slightly decline in June. The indicator remains on the rise for the 6th month in a row and well above its long-term average (1.26). Hence, after declining to 1.77 in 1Q 2007 the Kof barometer picked up to 1.98 in 2Q 2007 – its highest level since 3Q 2006, suggesting an modest acceleration of the economic activity in H2 2007.

Suggesting benign economic prospects for the quarters ahead, today’s reading may prompt the SNB to follow closer feedbacks of an acceleration of the economic activity on inflation. After the release of stronger-thanexpected GDP growth figures, the SNB rose once again its 3-month libor range by 25bp to 2.5%, highlighting raising uncertainties surrounding inflation prospects in 2007 and the need of more tightening in the coming months; “Should economic momentum remain unchanged or should movements in the Swiss franc result in a further relaxation in monetary conditions, further increases in the interest rate are likely in the months ahead.”