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UBS outlook, 3rd quarter 2008 - Swiss industrial sector not yet out of steam
The Swiss industrial sector is still performing well. While the latest UBS survey found that growth momentum is slowly easing off, all indicators for the second quarter and expectations for the third quarter remain in positive territory.
The results of the survey of some 410 companies conducted by UBS in May/June are still positive. Although the number of companies recording further improvements in their business activity is shrinking, industrial activity remains strong, as shown by the high capacity utilization, rises in order intake and sales figures, and continued workforce expansion.
UBS Business Cycle Indicator slightly down
The UBS Business Cycle Indicator, which is derived from our survey results and serves as a trend barometer for GDP growth, declined somewhat from a high level. At 2.8% for the second quarter and 2.3% for the third quarter, however, it still signals Swiss economic growth in excess of the long-term potential. UBS Wealth Management Research expects GDP growth to average 2.3% this year, softening to 1.4% in 2009.
Positive survey findings for the second quarter
The UBS survey found that the balance of companies benefiting from an increase in incoming orders fell to 30%, and companies reporting earnings growth only outnumbered the rest by 7%. Increases in order backlogs were also less widespread in the second quarter than in the first. Nevertheless, all these indicators remain well in positive territory. Survey results regarding the headcount and sales trends were also very positive: on balance, more than a quarter of the industrial companies taking part in the survey expanded their workforces in the second quarter. This is a clear sign that companies' confidence in the near-term future remains intact.
Food and watchmaking industries deliver best results
UBS combines the order intake, sales and production figures to produce a single "business trend" indicator, facilitating comparisons between the various sectors. This showed the watchmaking and food industries topping the sector rankings. While the watchmaking industry distinguished itself with rapid sales growth and an increase in new orders, the food industry boasted the fastest expansion in production. Electrical engineering was in third place. The timber & furniture and textiles industries were last in the rankings; in both sectors, companies reporting positive order intake and production trends were balanced out by those reporting negative trends.
Expectations still positive
The companies surveyed by UBS expect the underlying trend of a slowdown in industrial activity to continue in the third quarter. Though still in a majority, the number of companies expecting increased order intakes, growing sales, rising earnings and expanded production has diminished. But the overall trend remains upbeat. The assessment of order backlog and headcount trends was similar. Earnings was the only area in which stagnation is anticipated across the average for all sectors. Meanwhile, sales prices are set to rise again and companies will hire additional staff, though generally at a slower pace.
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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