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UBS SME barometer 1st quarter 2007 - Good times for SMEs

Zurich/Basel | | Media Releases Switzerland

Swiss SMEs continue to regard the general economic trend as very positive. This can be seen from the latest UBS SME barometer, which surveyed around 500 businesses in January. Despite the strong economic data, however, growth has probably peaked. Many businesses are still looking to hire new staff. Most of the qualified staff hired in 2006 came from abroad.

As in the economy as a whole, growth in the small and medium-sized enterprise (SME) segment in Switzerland seems to have peaked. The business climate in the final quarter of 2006 stabilized at the high level reached in the third quarter of 2006. According to the UBS survey carried out in January among approximately 500 businesses with fewer than 250 employees, SMEs expect the economy to continue to be solid, if slightly less dynamical, during the first quarter of 2007.

Dynamic final quarter of 2006

The business climate for Swiss SMEs stabilised at a high level in the final quarter of 2006. While, on balance, an impressive 54% of businesses reported increased total revenues in the third quarter of 2006, this figure rose slightly to 55% in the final quarter. Overall, SMEs benefited as much from the upswing as large companies. Thanks to the flourishing economy, SMEs in the service and industrial sectors were able to raise their prices on average in the final quarter. This led to a further rise in profits; on balance, around 31% of businesses managed to improve their earnings situation. There was also a surge in new hires to meet the rise in demand. The high level of backlogs in December means that opportunities for growth remain intact.

More modest growth expected in the first quarter of 2007

According to the expectations of the SMEs surveyed, the economy looks set to slow down slightly in the first quarter of 2007. However, neither industrial nor service SMEs expect to see a negative business trend; instead it appears that there will be a broad-based continuation of the upswing with much of its old momentum. Staff shortages are growing, although the main focus has now switched from the industrial to the service sector. Despite the continuing favourable environment for adjustments to sales prices there is a trend towards consolidation in earnings because of the slight fall-off in demand.

Lack of qualified staff also an issue for SMEs

While 46% of large companies surveyed by UBS economists reported that the number of job vacancies was slightly to significantly above the long-term average, the corresponding figure for SMEs was around 35%. In view of the fact that SMEs employ around two thirds of workers in Switzerland this should lead to a continuation of the recovery in the Swiss job market in 2007. That a lack of qualified staff is also an issue for SMEs can be seen from the fact that, according to the UBS survey, one in four SMEs regards the shortfall in qualified staff as a serious problem. However, almost one in two SMEs is of the opinion that the sting has been taken out of the problem by the gradual opening of the Swiss labour market to EU citizens. So, for example, in 2006 only 40% of the SMEs surveyed limited their recruitment efforts to the Swiss market; the rest also recruited staff from abroad. According to the UBS survey, a majority of the SMEs surveyed also plan to recruit qualified staff from abroad in 2007.

UBS SME barometer

Notes: black bars = realized figures for the previous quarters; shaded bars = expectations for the current quarter; balance of the "gains" and "losses" reported (year-on-year) according to UBS survey: business climate = average of the balance of new orders and sales reported

The methodology used in determining the UBS SME barometer
The UBS SME barometer is based on an evaluation of the UBS survey on manufacturing that has been carried out by the Bank since 1975 and which was extended from the third quarter of 2006 to include service providers. Around 700 companies (500 SMEs and 200 large companies), which form a representative cross-section of the Swiss economy, are surveyed every quarter. Any companies employing less than 250 people are classed as SMEs. The barometer reports the balances of the current and expected business climate, employment, sales prices and earnings of SMEs as a whole. These indicators are reported as weighted averages of the performance of each sector (manufacturing/services), with the weighting being based on contributions to value added in the overall economy by these sectors in 2005. The responses obtained from our survey are evaluated using a diffusion index: the balance for each indicator represents the difference between the percentages of companies reporting a positive or negative trend. It does not therefore represent a percentage rate of change. A comparison indicator has also been developed so that the barometer does not only provide information on the economic health of SMEs over the course of time, but is also able to allow a comparison to be made with large companies. It is defined as the balance of the SME business climate less the balance for large companies. Irrespective of the absolute economic situation, a rise indicates a relative improvement of SMEs in comparison with large companies, while a decline indicates the reverse.

Appendix: UBS SME barometer in figures

Contacts:

UBS AG

Dr. Daniel Kalt

Head of Economic & Swiss Research

Tel. +41-44-234 25 60

Hans-Peter Hausheer

Economic & Swiss Research

Tel. +41-44-234 67 32

Andreas Breitenmoser Bürki

Economic & Swiss Research

Tel. +41-44-235 39 43

Schweizerischer Gewerbeverband (SGV)

Dr. Rudolf Horber

SGV Political Secretary /
Member of the SGV Executive Board

Tel. +41-31-380 14 34

Edgar R. Minder

SGV Press Officer

Tel. +41-31-380 14 41

UBS publications and forecasts for Switzerland: www.ubs.com/economicresearch