The recession hits Swiss SMEs
Small and medium-sized enterprises in Switzerland are increasingly feeling the economic downturn. Business development stagnated in the fourth quarter of 2008, and companies' expectations suggest that business has declined appreciably since the start of the year.
Business activity of Swiss small and mid-sized enterprises (SMEs) largely stagnated in the fourth quarter of 2008: total sales hardly changed and new orders in the processing industry dropped sharply. A decline is expected in all indicators in the first quarter of 2009. This was the result of the latest survey that UBS conducts on a quarterly basis within the context of the UBS SME barometer in cooperation with the Swiss Trade Association. Around 640 SMEs and - for comparison purposes - 180 large companies participated in the current survey conducted in November/December.
Sharp drop in the fourth quarter
Industrial businesses and service-based SMEs both noted stagnating total sales and declining exports in the fourth quarter. Exports have suffered appreciably under the global economic downturn, and the strength of the Swiss franc versus the euro had a further negative impact on demand from neighboring countries. In addition, the decline in demand made it very difficult to hike prices. In the final quarter of the year, profits remained stable and employee numbers actually rose slightly. Swiss SMEs in the processing industry had far fewer unfilled orders than expected despite cutting back production. This trend may well persist since incoming orders both domestically and for the export market have dropped dramatically.
The downturn gathers pace
The sharp drop in incoming orders in the fourth quarter is also reflected in the survey results on expected development in the first quarter of 2009: respondents are expecting total sales to fall year-on-year. When this is coupled with their expectation that incoming orders will fall even further, the crisis appears to still be worsening. Accordingly, profits will remain under increasing pressure. Against this backdrop, the onset of redundancies will hit industry hardest, according to the survey.
SMEs slightly better off than large companies
Large Swiss companies are feeling the downturn even more than SMEs. In particular, exports and new foreign orders have dropped more sharply - a consequence of stronger international networking. Although they added to their workforces at a faster rate than SMEs in the past quarter, large corporations also expect a difficult quarter to start the year, and have profit and price expectations similar to SMEs. As a result, business climate forecasts (now calculated from the survey results on profit and sales trends) are similarly gloomy both for large and for smaller companies in Switzerland.
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 (4Q07 TO 3Q08); weighted average of the "strong gains," "gains," "losses" and "strong losses" reported (year-on-year) according to the UBS survey (4Q08 to 1Q09); business climate = average of profit and sales results
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 that was extended from the third quarter of 2006 to include service providers. Around 1300 companies (1000 SMEs and 300 large companies), which form a representative cross-section of the Swiss economy, are surveyed every quarter. Companies employing fewer than 250 people are classed as SMEs. The barometer reports the results 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 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 RESULT represents the weighted average of the percentages of companies reporting a very positive, positive, negative or very negative trend. It does not therefore represent a percentage rate of change. A comparison indicator has also been developed so that the barometer not only provides information on the economic health of SMEs over the course of time, but also enables a comparison to be made with large companies. It is defined as the result of the SME business climate less the result 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: SME business climate in figures
Economic & Swiss Research
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Edgar R. Minder
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The Schweizerische Gewerbeverband (sgv - Swiss Industry and Trade Association) is the umbrella organization 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 organized on a multi-sectoral basis.
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