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UBS SME barometer 4th quarter 2008 - SME activity: a slow pace to the end of the year
The slowdown anticipated by Swiss, small and medium-sized enterprises (SMEs) materialized in the 3rd quarter. However, growth was still clearly in positive territory. SMEs expect recent trends to continue in the 4th quarter, with growth in the SME sector declining further, while the business climate remains positive, and new jobs are still being created. However, SME earnings could show a decline year-on-year.
Business in the Swiss SME sector was good in the 3rd quarter for a net one-fifth of companies, but the pace of growth continues to ease. While this slowdown will continue in the final quarter, the overall trend is still positive, and on balance some 10% of surveyed SMEs plan to create new jobs in the 4th quarter. These are the results of the latest UBS quarterly survey conducted for the UBS SME barometer, in cooperation with the Swiss Industry and Trade Association. The current survey for August/September covered around 330 SMEs, plus 130 large companies for comparative purposes.
Growth not entirely out of steam in the 3rd quarter
As expected, activity in the SME sector slowed in the 3rd quarter. The number of companies reporting higher new orders fell, along with the number reporting rising sales. Exports by Swiss SMEs grew significantly less than expected in the previous quarter, whereas in June almost 30% of SMEs on average expected rising export sales in the 3rd quarter. There was effectively no change year-on-year. On the whole, one in ten of the surveyed SMEs reported rising earnings, 7% reported growth in order books, and 14% created new jobs. On balance 21% of SMEs reported a positive business climate.
Industrial SMEs faced a more challenging environment in the 3rd quarter than their counterparts in the service sector. On balance, the proportion of service enterprises with rising new orders, sales and profits was well above that of industrial firms, where order books showed hardly any increase and output rose only slightly. However, a net 21% of industrial SMEs reported additional hires, while comparatively fewer (net 10%) of service SMEs did so. The business mood in both sectors was less optimistic but still positive.
By comparison, large companies grew rather faster than SMEs in the 3rd quarter. Although large companies were disappointed by domestic order inflow, export orders were still strong. While fewer companies reported higher export sales than in the previous quarter, the drop was less than for SMEs. The net share of enterprises reporting rising earnings fell in both the small and large company samples. However, this share was lower among SMEs. The share of companies reporting increased headcount was much greater among large companies (net 45%) than SMEs.
SME activity slowing in the 4th quarter
Swiss SMEs expect growing challenges in the 4th quarter. Winning orders will be more difficult than in the previous quarter, particularly for exports, and only a net 10% still expect an increase in new domestic orders. There is concern that order books will be static, and a net 5% of companies even expect falling earnings compared to the previous year. Overall, however, the business climate is expected to remain positive, and on balance almost 10% of SMEs plan to hire additional workers.
SMEs in the service sector again face fewer problems in the 4th quarter than their industrial counterparts. Their expectations for new orders and growth generally indicate continuing growth, although earnings are expected to stagnate. Nevertheless, only a net 6% of service SMEs plan to hire additional workers, compared with 14% of industrial SMEs.
According to the latest UBS survey, the Swiss SME sector will continue to slow in the 4th quarter. Large companies are significantly more confident, with no indicators showing a negative balance in this sector. Again, however, there is a clear slowing of growth.
Investment primarily for replacement purposes
Swiss companies invested more than the long-term average in 2008. Some 30% of companies plan to increase investment in the coming year, while 47% will invest about the same as in 2008. Whereas Swiss large companies are focusing more on expansion and new capacity, the SMEs increasingly plan to make replacement investments.
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
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The Schweizerische Gewerbeverband (SGV - Swiss Industry and Trade Association) is the umbrella organisation for small and medium-sized enterprises. It was founded in 1879 and is now the biggest business association in Switzerland. The SGV is active in representing the interests of some 300,000 small and medium-sized enterprises, most of which are members of approximately 250 industry and professional associations and of the cantonal industry and trade associations, which are organised on a multi-sectoral basis.
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