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UBS Outlook, 1st Quarter 2003. Modest momentum in industry.

| Media Releases Switzerland

Swiss industry remains gloomy. While companies forecast stable exports, the latest UBS survey indicates that they are still sceptical about domestic demand.

Swiss industry experienced further setbacks in the fourth quarter of 2002. 37% of the firms polled by UBS economists suffered a fall in sales, while only 27% reported growth, giving a balance of -10%. In terms of earnings, the net balance was even worse, at -15%. There is still no sign of a sustained recovery by the nation's industry in the immediate future. Nevertheless, the results of the December survey of some 350 companies point to a slight improvement on the figures for September. For instance, the downturn in orders received, production, sales and profits has eased significantly. Exports, in particular, appear to be making a gradual recovery. Moreover, the UBS business cycle indicator, which is based on these survey results and anticipates by two quarters the official figures for trends in Swiss GDP, also points to a cautiously positive overall trend in the Swiss economy. The economy as a whole expanded by 0.6% in the summer of 2002 following two quarters of negative growth, and the indicator points to a cautiously positive growth trend for both the last and the current quarters.

Emerging from the doldrums
The slump in export demand, the crisis in business investment, the strength of the franc and muted consumer spending hit all industries surveyed hard in 2002, with the exception of food and pharmaceutical producers. However, the UBS survey indicates that after suffering another sharp decline between July and September, the economy took a turn for the better in the final quarter. The slower decline in incoming orders and in domestic sales as well as the stable performance of the export sector signal that Swiss industry has emerged from the doldrums. Nevertheless, all indicators still showed more 'downs' than 'ups'. The drop in sales meant further production cutbacks and widespread reductions in staff. Despite such cost savings the earnings situation continued to worsen as a result of tough price competition and, for the export sector, the unfavourable exchange rate.

The sectors that performed best in the fourth quarter were food and paper: while other sectors recorded falling earnings, profits in these two areas continued to rise. Although chemicals/pharmaceuticals remained stable, the other industries, chief amongst them timber and furniture, suffered setbacks in both sales and earnings.

Cautious optimism for the first quarter
Industry is also expecting business activity to decline overall in the first quarter of 2003. Companies are still pessimistic about domestic demand, in particular, in view of the deteriorating labour market situation, but they expect foreign sales to remain more or less stable. The food, paper and textiles and chemicals sectors are forecasting positive growth. Metals and plastics seem to offer potential for a slight recovery from their current low levels. By contrast, companies in the watchmaking, electrical engineering and printing and graphics segments fear even greater setbacks.

More redundancies on the cards
The gloomy economic outlook is reflected particularly clearly in companies' employment plans. The sharp drop in demand last year forced most sectors to slash their headcount, a process that looks set to continue, with the UBS survey indicating that further jobs will be lost in the new year. The chemical industry is alone in predicting a requirement for more staff in the first quarter, while timber and furniture, paper and printing, machinery and plastics are planning to reduce numbers.

UBS business cycle indicator and Swiss GDP
(% change year-over-year)

Data (%)

Sources: seco (GDP); UBS (survey and calculations)
*preliminary official data

Zurich / Basel, 31 January 2003
UBS AG