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UBS outlook 3rd quarter 2005. Swiss industrial activity picking up.

| Media Releases Switzerland

The recent dip in Swiss industrial activity appears to have been temporary. According to the latest UBS survey, economic momentum regained strength in the second quarter and this upswing will remain largely intact from July to September.

According to the results of the UBS quarterly survey of some 350 Swiss industrial companies, conducted in June, a renewed upturn set in during the second quarter. As companies expected, the slowdown during the two preceding quarters has now been largely overcome. The overall Swiss economy is set to shift into faster gear in the second half of the year. This is the picture that emerges from the UBS Consumption Indicator, which is calculated on the basis of effective responses to the quarterly survey. With a lead of two quarters on the official gross domestic product (GDP) figures, the barometer predicts the likely development of the Swiss economy. Following a slowdown in real GDP growth in the first quarter to +0.7%, an upturn is to be expected by the third quarter at the latest.

Positive expectations for the second quarter confirmed
The business trend in industry improved again during the second quarter, in line with expectations. At the same time the latest UBS survey shows that growth momentum is broadly supported. Both domestic and foreign order inflows were up and the previous large divergences between trends in individual sectors have diminished. The upturn was particularly strong in the machinery industry, which had suffered the severest downturn before, as well as in the timber and furniture sector. Together with the chemicals/pharmaceuticals and watchmaking industries, timber and furniture was also among the growth leaders. Textiles was the only sector to still report a fall in business activity, although this was considerably smaller than in the previous quarter. While activity in the electronics, metals and plastics industries has declined, the indicators for orders received, production and sales in these sectors remain clearly in positive territory.

Clear signs of recovery
All in all, 46% of the survey participants from Swiss industry reported rising order intakes and just 20% a drop in orders (balance: +26%). In the preceding quarter the net figure had been just +19%. Production and sales performance was similarly positive. Owing to the expansion of production, the capacity utilization rate increased by almost 2 percentage points to 86%, and the earnings trend turned slightly positive again on the back of higher sales volumes. The earnings situation looks best in the chemicals/ pharmaceuticals, machinery, and timber and furniture sectors, while the plastics and textile industries suffered the sharpest drop in income. The pressure on prices increased again, but the upturn was still too weak to break the negative employment trend. Headcounts were up year-on-year at only 20% of companies at the end of June, while 24% of companies employed fewer staff than a year earlier.

Industry expects upswing to continue
Companies expect continued growth for the months July to September. Orders from both domestic and foreign clients are forecast to increase on a similar scale to the previous quarter. Overall, 39% of the companies surveyed expect higher incoming orders and just 14% expect a drop. Industrial companies are planning to further expand production over the coming months, which should also help to generate a slight improvement in capacity utilization. At the same time, stocks of finished goods are being reduced year-on-year. Although staff numbers are likely to be down in September versus a year ago, adjustments in headcount now seem to be largely over, with planned new recruitment and staff departures balancing each other out versus June.

Sound business trend in almost all industries
Expectations regarding orders received, production and sales in the third quarter are very similar across all industry sectors.
Chemicals/pharmaceuticals, watchmaking, and paper, printing and graphics are expecting the best trend in business, closely followed by the machinery and electrical engineering industries. Plastics is the only sector to forecast a stagnation.

UBS Business Cycle Indicator and GDP
Year-on-year change in %

Data (in %):


Zurich/Basel, 06 July 2005
UBS AG