UBS SME barometer 4th quarter 2007 - Still full steam ahead for SMEs
Some 500 companies were again surveyed about their business performance in September for the latest UBS SME barometer. The findings of the survey are clear: Swiss SMEs were in top form once again in the third quarter, the business climate was excellent and expectations were in most cases surpassed. The outlook is still positive for the current quarter, but companies expect growth to slow slightly.
Small and medium-sized enterprises (SMEs) continued to perform extremely well in the third quarter, in fact recording even stronger growth. The service sector in particular can look back on a hugely successful quarter. The companies surveyed are also very optimistic for the current quarter. According to the survey of around 500 companies with fewer than 250 employees, conducted quarterly by UBS in conjunction with the Swiss Industry and Trade Association, SMEs will continue to expand in the fourth quarter. However, the survey participants expect growth to be slightly more moderate.
Renewed acceleration in growth in the third quarter
According to the results of UBS's September survey, Swiss SMEs significantly exceeded their positive expectations for the third quarter. A net 51% of companies recorded an increase in incoming orders, driven by an unexpectedly strong rise in export demand. While SMEs in the services sector benefited from growth in orders from abroad, industrial companies also enjoyed a rise in exports thanks to favorable price trends in export markets. The Swiss franc's weakness against the euro played a key role in this. Overall, the companies surveyed were able to hire increasing numbers of new employees. Despite the sharp acceleration in production growth they also reported larger order backlogs.
Ongoing capital spending underlines the positive expectations
Against this solid backdrop, one-third of the SMEs surveyed plan to increase capital spending on capacity expansion in 2008, while around half are likely to spend about the same as in 2007. 44% of companies rate their overall current capital spending activity as above-average, and one-third of survey participants say the same is also true of their plans for 2008. This planned capital spending underlines the positive expectations of the SME sector, which anticipates demand and earnings growth to remain high and weaken only slightly in the current quarter. On balance, 40% of SMEs expect to see further improvement in the business climate in the fourth quarter. This is in line with the responses of the large companies surveyed for comparative purposes. Within the SME sector, however, the services companies stand out for their very high expectations for the fourth quarter. Overall, order books are full and companies are still recruiting. Both the strong euro and the prospering export markets look set to provide a positive boost to Swiss SMEs and keep them in good shape in the fourth quarter.
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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Schweizerischer Gewerbeverband (SGV)*
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Edgar R. Minder
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* The Schweizerischer Gewerbeverband (SGV) is the umbrella organisation for small and medium-sized enterprises. It was founded in 1879 and is now the biggest economic 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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