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UBS Outlook 2nd quarter 2004

| Media Releases Switzerland

Swiss industry shifts up a gear. Swiss industry received a substantial boost from foreign demand in the first quarter, with order books buoyant and a significant increase in sales. Domestic demand was also healthy, and according to the latest UBS business survey, the strong upward trend is set to continue in the second quarter.

Business activity in Swiss industry improved significantly during the first quarter of 2004. With the global economy improving strongly, incoming orders rose markedly, and sales to Switzerland's major markets moved sharply upwards. The upturn is broadly based across a majority of sectors.

Clear confirmation that the Swiss economy has returned to growth comes from the UBS business survey of over 300 firms in the industrial sector conducted in March, and the UBS business cycle indicator which is derived from the survey results. This indicator is a very reliable gauge of the short-term trend in Swiss GDP, anticipating the official data by two quarters. The latest figures point to clearly positive growth of around 2% for the Swiss economy in the first half of 2004, after a final quarter of 2003 in which it stagnated year-on-year.

Increasing momentum
The optimism expressed by companies early in the year regarding orders received, production and sales has been entirely vindicated. Increased capital spending on production facilities has given an especially strong boost to the machinery, metals and electrical engineering industries: while only 40% of firms in these sectors polled in the final quarter of 2003 reported higher levels of orders received (with 28% stating that orders were down), this figure climbed to over 50% in the first quarter of 2004, with only some 15% of companies still reporting a decline. On a sector comparison, the capital goods industry was thus the leader in terms of growth. Chemicals & pharmaceuticals, and the plastics and food industries, also saw a sharp upturn in business. The only sector failing to benefit was the textile industry, where the fall in business activity actually accelerated.

With order books filling up once again, industry ramped up production in the first quarter after nine quarters of cutbacks. Order backlogs also rose. Earnings stabilized for the first time in a long period, and price pressure declined - clear signs that the industrial recovery is taking hold.

Growth drivers remain intact
Expectations for the second quarter remain optimistic, with the upward trend actually expected to gain momentum. Foreign orders are likely to pick up strongly, and the consensus assessment of domestic demand is also very positive. Overall, 50% of firms expect sales to grow, while only 9% anticipate a decline. The industrial companies surveyed by UBS are therefore planning to expand production again. Profits are improving steadily, while the pressure on prices is declining visibly. There is, however, still no sign of a turnaround in demand for labour, and the majority of firms still believe they will have to reduce headcount. Nevertheless, the dominance of negative over positive reports regarding the recruitment trend has grown progressively smaller over the last few quarters. Only the chemical & pharmaceuticals industry and watchmaking, however, are expecting a modest requirement for extra staff in the April to June period.

Optimism right across the board
The various sectors of industry take a unanimously confident view of prospects for the months ahead, with all the sectors covered by the UBS survey expecting an increase in incoming orders. In the capital goods industry especially, the growth drivers are still fully intact, and this sector is also anticipating the strongest business increase of any industrial branch in the second quarter. Also very confident are chemicals & pharmaceuticals and the watchmaking and plastics industries, while paper, printing & graphics and the textile industries are forecasting below-average levels of orders received, production and sales. In general, however, earnings are less dynamic than sales.

UBS Business Cycle Indicator and gross domestic product
(Change year-on-year in %)

Zurich / Basel, April 5, 2004
UBS

Data (%)

Sources: seco (GDP); UBS (survey and calculations)
*provisional official figures



Zurich / Basel, 5 April 2004
UBS