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UBS Outlook 4th Quarter 2003

| Media Releases Switzerland

Outlook for industry brightens. The global economic upturn is providing an initial tentative boost to Swiss industry, and the firms surveyed by UBS are also expecting foreign demand to pick up in the current quarter.

After a dismal performance in the first half of the year, Swiss industry seems to be emerging from the doldrums. This is the conclusion from the quarterly UBS survey of some 300 firms in the industrial sector carried out during September. Although sales and earnings were down again sharply in the third quarter, the figures for most sectors showed a marked improvement quarter-on-quarter. Moreover, sentiment seems to have bucked up throughout the economy. No less than seven of the ten sectors surveyed actually expect orders received to rise in the final quarter of 2003, with the main impetus coming from abroad, while the domestic economy is likely to remain weak for the time being.

The improved business situation of Swiss firms can be seen in the UBS business cycle indicator, which mirrors the concrete results of the survey and provides a very reliable picture of the near-term performance of the Swiss economy, leading the official data by two quarters. GDP contracted year-on-year by 0.6% and 1.0% respectively in the first two quarters of 2003, but our trend barometer now indicates that a hesitant recovery is in sight. Nevertheless, real GDP growth is unlikely to move into positive territory in either the third or fourth quarter of the year. In 2004, however, the upswing should pick up considerable speed as the global economy gets under way.

Weak business activity in the third quarter
With the European economy still sluggish and growth in Switzerland extremely weak, industry recorded a further deterioration in business activity in the third quarter. Across the board - whether orders received, production, order backlogs or sales - companies reported more declines than increases. In most sectors, however, the decline has slowed.

Since order backlogs have now been shrinking for ten consecutive quarters and the rebound in incoming orders has still to show up in positive growth rates, companies once again cut back production in the third quarter. As a result, plant capacity utilization remained low at 83% - some three percentage points below the long-term average. The only exceptions were the chemicals/pharmaceuticals and metals industries, which raised their output again slightly for the first time. Overall, however, sales fell sharply once again, especially in the domestic market. The inadequate level of capacity utilization also

impacted headcount, with a net 36% of industrial companies reporting a fall in staff numbers.

Stimulus from foreign demand expected
The strong improvement in global growth prospects is brightening considerably the business outlook for Swiss industry in the final quarter of 2003. Export companies, in particular, are likely to see their order books filling up rapidly as the European economy gathers pace. In the fourth quarter, more orders are expected to come from abroad, while domestic demand looks as though it will still be slightly negative. Since stocks of finished goods have been steadily reduced over the last six quarters, companies are likely to step up production a little for the first time. But with pressure on prices continuing in both the export and domestic markets, earnings are set to remain fragile. The downsizing of the workforce is not yet complete: 33% of companies expect to reduce their headcount between October and December, while only 6% are planning to take on more labour.

Broad-based recovery
All sectors of industry are likely to feel the benefits of the upswing in the fourth quarter. Most optimistic is the food sector, while the capital goods industry also expects a positive trend in incoming orders. Watchmaking and textiles, together with paper, printing & graphics, are all forecasting a continued decline in orders.

UBS business cycle indicator and Swiss GDP
(% change year-over-year)

Data (%)

Sources: seco (GDP); UBS (survey and calculations)
*preliminary official data



Zurich / Basel, 10 October 2003
UBS