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UBS outlook Switzerland 4th quarter 2009 - Swiss economy soon back on growth track
The Swiss economy has now bottomed out and should return to positive growth in the fourth quarter. The UBS Business Cycle Indicator, which is based on a quarterly survey, is pointing to renewed expansion.
Swiss firms are beginning to feel more confident about the future, reflecting expectations that the economy should see mild growth in the fourth quarter of this year. Although the expansion will be modest, the economy appears to be stabilizing as the recession fades, according to the UBS Business Cycle Indicator survey of approximately 350 Swiss companies in September.
UBS has been conducting a quarterly survey of business trends at Swiss industrial companies since 1975. Over the years, it has proven to be a reliable near-term barometer for the Swiss gross domestic product (GDP). The current survey, which considers data from 1981 to today, reveals that there was less pressure on both domestic and international new orders in the third quarter, as well as on output, revenues and earnings. Of the firms asked, the expectations for the fourth quarter suggest that this improving trend will continue. But, as is often the case, the employment situation is once again lagging behind the upturn in the economy. The companies surveyed have reduced their staff compared to a year ago, and the survey indicates that this trend will persist for the foreseeable future.
The UBS Business Cycle Indicator, calculated from the results of the survey, has risen to 0.2% for the fourth quarter. It indicates that there will be a slight upturn in growth compared with a year ago, suggesting the Swiss economy is probably out of recession.
A modest lift for many export-oriented sectors
Both domestic and international new orders in the machinery, electrical engineering and metals industries (MEM) rebounded in the third quarter after the sharp drop at the start of the year. Orders were also higher for plastics, building materials, paper and textiles (materials). Despite the upturn, new orders, output, revenues and earnings are all still lower than they were a year ago. Businesses should see a modest improvement in the fourth quarter. But the number of people employed will continue to shrink, with MEM industries affected more than the average.
Chemicals industry rebounds
The chemicals industry has recovered a bit more rapidly than the MEM and materials industries. Survey respondents generally expect to reach last year's levels in the fourth quarter, in terms of production and new orders from abroad. In addition, the chemicals industry has seen fewer job losses in this cycle than the MEM and materials industries.
Job losses to continue in watchmaking industry
In contrast, there are no signs that the watchmaking industry has turned the corner. New orders for both the export and domestic markets fell even more in the third quarter than they did in the second. In no industry have the order books been harder hit than in watchmaking. The watchmakers have also cut back on personnel more than any other industry. Survey respondents in the sector do not expect to be able to stop the slump in production in the fourth quarter, although they are forecasting less of a decline in new orders and a slight improvement in sales and earnings. They will continue to cut back on personnel.
Service sector stabilizes
Approximately 350 companies from the service sector took part in the UBS quarterly survey in September. The results are relatively positive, indicating, as in the industrial sectors, that the economic situation has stabilized. Although revenues, earnings and prices remain below last year's level, the assessment of the business climate by most companies in the sector was more positive in the third quarter. The outlook for the fourth quarter is also positive.
Tough times for the media
In a sector comparison within the Swiss service industry, the media sector saw the largest drop in earnings and revenues in the third quarter. While the drop in sales in the third quarter was not as pronounced as in the second quarter, the trends for many other indicators deteriorated. Earnings fell even more than they did in the second quarter. The pressure on prices increased, and staff was reduced more than in the prior quarter. Job cutbacks were even greater than companies had forecast. Thanks to reduced pressure on prices, sales and earnings, the sector is hoping to at least ease the downward trend for business in the fourth quarter.
Outlook: Growth next year
The economists at UBS are forecasting a growth rate of 1.7% for next year. While the export and financial services sectors seem to have overcome the negative shocks for now, the impact on the rest of the economy is yet to come. As a result, UBS economists expect the unemployment rate for next year to be well above the level for this year. They are also forecasting that the sentiment among consumers will be subdued and that the construction sector will see a drop off. Thus, next year for many may feel worse than the growth outlook would suggest, as the forecast is driven by the basis effect. The GDP forecast is calculated using economic models, with the UBS Business Cycle Indicator being just one of the many factors taken into consideration.
Daniel Kalt, Head of Economic & Swiss Research
Tel. +41 44 234 25 60
Carla Duss, Economic & Swiss Research
Tel. +41 44 234 21 19
UBS publications and forecasts for Switzerland: www.ubs.com/economicresearch
UBS Business Cycle Indicator and gross domestic product
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