Activity picking up across the economy
The last few years have been difficult for business, but companies in most sectors are expecting significantly better sales and earnings this year. Financial services, telecoms, pharmaceuticals and capital goods industries are set to lead the sector advance in 2004, whereas the construction and watchmaking sectors are still suffering from contracting demand and earnings. These are the results of a broad-based UBS survey of 4300 companies in 27 main sectors and 95 sub-sectors of the economy.
In 2003, sales of the companies participating in the UBS survey were close to flat on aggregate. Trends varied greatly from one sector to another, however. Eleven sectors saw an increase in business volume, while fifteen registered a decline. The weak economy left an even bigger dent in earnings than in sales, with only ten sectors reporting higher profits and seventeen a downturn. The industries reporting the heftiest drops were watchmaking and tourism, which both felt the full effect of the decline in international travel due to the sluggish economy, the war in Iraq and, in the first half of the year, the SARS virus. At the other end of the spectrum were firms in the financial services sector, which reported a strong rebound from the extremely depressed or even negative levels of the previous year. The pharmaceutical industry was able to lift its earning power yet again with impressive consistency.
Sales growth in 2004
In view of the brighter economic prospects worldwide, the companies surveyed are strikingly unanimous in their optimism for the current year. Only the construction sector fears that it could see a renewed drop in business volume and despite signs of a recovery, watchmakers are not convinced that sales will rise. Apart from this, sector expectations are predominantly optimistic. The turnaround should be most apparent in the capital goods, commerce & logistics, consultancy & communications sectors, the consumer goods industries and tourism. Banks, insurance companies and pharmaceuticals continue to be growth leaders, joined this time by the telecommunications and electrical engineering industries.
Most companies expect better earnings
Earnings forecasts for 2004 are also positive, even if they do not quite match sales predictions. Nevertheless, most companies in as many as 20 sectors expect to see an improvement in their results and, with the exception of health and social services as well as architecture and engineering, the other seven should now be over the worst. Companies in the financial services and capital goods sectors as well as consultancy & communications are also particularly confident.
Ongoing price erosion
After coming under widespread pressure from competition and sluggish demand in the past year, prices will only begin to firm again gradually in some areas next year. On aggregate for all the companies surveyed, the erosion of prices is continuing at only a slightly diminished pace, with only seven of the 27 sectors surveyed reporting an improvement. This was most noticeable in the insurance sector where another rise in premiums is expected across all lines. Whereas prices in other sectors seem to have bottomed out, companies in the pharmaceuticals industry and the health and social services sector are expecting increased downward pressure on prices.
Recruitment is lagging behind
As can be seen in every phase of the business cycle, the job market initially tends to react with some delay to an emerging upturn. Overall, only seven sectors hired additional staff in 2003, with employment levels declining everywhere else. For the current financial year, eight sectors report that they need to recruit more staff and five confirm they can manage with current staffing levels. Our survey reveals that the pharmaceuticals industry, IT services, telecommunications and real estate show the greatest potential, but on balance the picture is one of a slight reduction in workforce.
Stabilizing effect of SMEs
Breaking our survey down by company size reveals that large companies experience the greatest fluctuations in economic growth. In fact, in terms of sales and earnings growth, the former saw the largest falls in the past financial year of all sectors, but conversely, they are now the most optimistic on both counts for 2004. The comparatively steadier performance of small and medium-sized businesses (SMEs) is also reflected in virtually unchanged staff numbers.
Zurich / Basel, 16 January 2004