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UBS outlook 1st quarter 2007 - Swiss business sectors in very good shape
For nearly all sectors of the Swiss economy, 2006 was an excellent year. While the outlook for 2007 is more restrained, it nevertheless remains positive. The financial sector, electrical engineering, chemicals and watchmaking expect the strongest momentum, as evidenced by the results of a broad-based survey by UBS of more than 4200 companies in 27 main sectors and 95 sub-sectors.
Nearly every sector participated in the strong growth of the Swiss economy in 2006. According to the most recent comprehensive UBS business survey, last year was one of the best in two decades on all counts: sales and earnings growth, selling prices, personnel and investment. The strongest sales trends were reported by companies in the pharmaceuticals, electrical engineering, chemicals and metals industries. Watchmakers managed to keep pace with the top group even after several boom years, as did banks. Wholesalers, tourism and architecture and engineering firms made noticeable strides. Telecommunications companies, on the other hand, closed the 2006 business year with just a slight increase in sales.
Accelerated earnings growth
With sales booming, earnings growth was firmer in 2006. According to the UBS survey, telecommunications was the only sector to record a decline, which was the result of stalling sales and a surge of investment in new technologies. Health and social services and the automobile sector also lagged far behind the earnings trend of all the sectors in the survey. Financial services companies, pharmaceuticals and chemicals once again topped the list. Capital goods producers also posted above-average performance, helped by additional earnings on exports as a result of favourable Swiss franc exchange rates.
Price pressure eases
Pressure on selling prices, which has continued since 2002, eased last year. Despite continued fierce competition, steady demand allowed companies to pass at least some of the increased costs for energy, commodities and personnel on to their customers. Export prices were higher in Swiss franc terms due to the franc's weakness against the euro. Yet the sector comparison reveals that price trends continue to be very divergent. Eight of the 27 sectors included in the UBS survey continued to experience price pressure, with the sharpest drop experienced in telecommunications. Even retail prices headed lower as a result of the price war between the big distributors. The strongest rises in prices and rates were reported by corporate services, watchmakers, real estate firms, the automobile industry and leisure service providers.
Staff shortage is a topic again
A large majority of companies only managed to fill their plentiful orders by hiring new staff, not infrequently finding themselves constrained by the job market. According to the UBS survey, only the telecommunications and retail sectors shed jobs overall, with all other sectors adding personnel, some to a significant degree. Watchmakers, which had to fill staffing shortages, were particularly expansive, as were banks, IT service providers and capital goods producers.
Normalization on the cards for 2007
The difficult global economic environment looming ahead is putting a damper on corporate expectations in nearly every sector. However, according to the UBS survey the vast majority of firms think the trend will remain positive in 2007. Given current sales and earnings levels, which were rated high in the survey, the assumption of a continued, albeit more modest improvement should be interpreted as a sign of optimism. It is interesting to note that companies expect 2007 earnings to be more resilient than sales. Seven sectors even harbour more ambitious earnings expectations, most notably watchmaking and the automobile industry. The latter simultaneously hopes to recover from the rather disappointing sales trend of the previous year and is only exceeded in this respect by insurers who are hoping for a significant increase in their premium volume.
Daniel Kalt, Head Economic & Swiss Research
Tel. +41-44-234 25 60
Karin Schefer, Economic & Swiss Research
Tel. +41-44-234 43 94
Andreas Breitenmoser, Economic & Swiss Research
Tel. +41-44-235 39 43
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