The clouds hanging over the Swiss economy are lifting, a leading indicator showed on Friday, as the central bank's cap on the franc currency helps shield the country from the fallout of the euro zone's debt crisis. The index compiled by the KOF research institute, a gauge of the economy's expected performance in about six months' time, rose to 1.43 points in July from a revised 1.15 points in June. It beat the average forecast of 1.25 points. That was its sixth consecutive monthly rise.
"I'm surprised how positive the KOF is. If it's to be believed, Switzerland is about to experience a surge in momentum," said Sarasin economist Alessandro Bee. "What is far more important for the central bank is how the risks in the euro zone develop. And there caution is still warranted." To shield the economy from recession and deflation, the Swiss National Bank set a cap of 1.20 per euro on the currency last September, seeking to turn back a wave of capital flooding into the currency as a safe haven from the euro zone's troubles.
Switzerland is highly dependent on trade with the euro zone, and companies that export to the bloc have seen business suffer from the franc's gains before the cap was established. But halting the appreciation at 1.20 per euro is widely credited with helping the Swiss economy escape contraction or a surge in unemployment.