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Engine of industry lacks power

| Media Releases Switzerland

The Swiss industrial sector is flagging. According to the latest UBS survey, business activity was disappointing in the first quarter of 2003. A trend towards stabilization is now identifiable, but it will be slow to take effect.

UBS Outlook, 2nd Quarter 2003

With the global economy still sluggish, the Swiss industrial sector suffered a further setback during the first quarter of 2003. Both on the domestic markets and abroad, sales were down sharply on the previous year. According to the results of the latest UBS survey of around 350 industrial companies in March, there are still no signs of a substantial recovery. The drop in orders received, production and earnings was even more severe than one quarter ago. The UBS business cycle indicator, which is based on the results of the survey and anticipates by two quarters the official figures for trends in Swiss GDP, points towards a barely perceptible, but nevertheless positive growth trend by the middle of the year.

Setbacks in the first quarter
The year got off to a disappointing start for Swiss industry, with the stabilization of export sales anticipated in the December survey not materializing in the first quarter, and domestic demand declining rather more dramatically than expected. Ongoing low capacity utilization - at 83%, well below the normal long-term rate of some 87% -, major economic and geopolitical uncertainties and the insufficient earnings power of many companies have had a negative impact on business activity in the capital goods industry. Nevertheless, it would appear that the worst is over. At the same time, however, the gloomy employment outlook is dampening consumption. The furniture and watchmaking industries in particular are suffering from the marked reluctance of households to make big purchases. All sectors, with the exception of food, paper and the chemical and pharmaceutical industries, had to deal with shrinking order volumes and falling sales in the first quarter, with production being cut back and headcounts reduced. Between January and March, 38% of companies cut staff, while only 6% were able to create more jobs. Intense competition on the export markets and the increase in the value of the franc against the US dollar also forced firms to cut prices. As a result, the proportion of companies whose profitability has deteriorated rose from 36% at the time of our last survey in December to 40%, while the percentage of firms posting earnings increases fell from 21% to 17%.

Stabilization of foreign demand in sight
With economic activity still flat, thin order books and sharp falls in order backlogs, the outlook for industry as a whole in the second quarter is gloomy. Companies are expecting business activity to decline slightly, but positive assessments are becoming more frequent on the whole. Export sales are expected to remain more or less stable, while predictions are rather more pessimistic for domestic deliveries. A continued squeeze on production is helping to reduce stocks of finished goods further. Only 5% of companies report a need for new recruits, while 31% expect to carry out job cuts by the end of June. Sales prices are continuing to fall and, on balance, 18% of industrial companies are likely to be affected by earnings problems.

All sectors, with the exception of watchmaking, chemicals & pharmaceuticals and printing & graphics, agree on the somewhat more optimistic assessment of the second quarter. Food continues to have good growth prospects, ahead of the paper industry. The plastics industry is expecting to see orders pick up sharply, while the other sectors anticipate a continuation of the negative business trend, albeit at a slower rate.

UBS business cycle indicator and Swiss GDP

(% change year-over-year)

Data (%)



Sources: seco (GDP); UBS (survey and calculations)

*preliminary official data


Zurich / Basel, 4 April 2003
UBS AG