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UBS outlook, 2nd quarter 2008 - Swiss industry sustains its momentum
Swiss industrial activity continues to power ahead. According to the latest UBS survey, capacity utilization will actually rise to 90.4% in the second quarter. The momentum, however, is gradually easing.
The results of the UBS survey of some 340 companies are once again upbeat. They show continued momentum in the Swiss economy, but with growth slowing somewhat. Capacity utilization in industry in the first quarter was 90.1%, and is even estimated to rise somewhat in the second quarter.
UBS Business Cycle Indicator remains solid
The UBS Business Cycle Indicator, which is derived from our survey results and serves as a trend barometer for growth in real GDP, shows that although the Swiss economy has peaked, growth is slowing only gradually. It indicates a strong first quarter 2008 (+3.7% growth in GDP year-on-year) and only a modest slowdown in the economy in the second quarter, with growth still expected to be around 3%.
Good first quarter
Almost all the business trend indicators surveyed by UBS were better than expected at the end of 2007. A net 41% of companies still reported an increase in orders received, and almost 50% saw growth in overall sales. Domestic business was excellent, with new orders continuing to rise virtually unchecked. The trend in employment was also very positive. For the past year, a net 30% of companies have hired additional workers every quarter. Although earnings momentum slowed compared with the final quarter of 2007, it was well ahead of the sceptical expectations at the beginning of the year.
Uniform trend across industries
In the first quarter, the watch industry had the largest net share of companies reporting rising sales, higher earnings, growing order books and price increases. The food industry exhibited the most positive trend in new orders, and the textile industry was most satisfied with export orders. The electrical engineering industry had the most companies increasing headcount. However, this sector also showed the smallest number of companies able to push through price increases. The plastics industry brought up the rear. In no sector did a majority of companies report a slowdown in business performance. The overall picture is quite uniform across all Swiss sectors. Only three industries deviated by more than 10 index points from the average business performance: the food and watch sectors were 10 points above, while the plastics industry was 10 points below.
Expectations just a notch lower
Swiss industrial companies continue to be confident about the immediate future and expect business to remain good in the second quarter. They accordingly plan to further expand production and hiring. The participants in the UBS survey were cautiously optimistic regarding orders and sales. They are forecasting that order backlogs and earnings will continue to rise modestly in the second quarter. However, this positive outlook may be somewhat dampened by the latest appreciation in the franc and the expected drop in global demand in the second half of the year.
Daniel Kalt, Head of Economic & Swiss Research
Tel. +41 44 234 25 60
Felix Brill, Economic & Swiss Research
Tel. +41 44 234 35 54
UBS publications and forecasts for Switzerland: www.ubs.com/economicresearch
UBS Business Cycle Indicator and gross domestic product
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