Small and medium-sized enterprises (SMEs) are an extremely important segment in the Swiss economy since more than 99% of all businesses fall into this category and they employ around two-thirds of the country's workforce. Their estimates on business trends and employment are therefore key to determining the overall state of the economy. Given the dearth of SME-specific indicators for Switzerland, UBS and the "Schweizerischer Gewerbeverband" (SGV) decided to keep a regular check on the pulse of the country's SMEs. The SME barometer, which was developed for the SGV, will be published on a quarterly basis.

Pierre Triponez, Director of the SGV and member of the National Council, and Hans-Ulrich Meister, Head of Business Banking at UBS, stressed the importance of SMEs to the Swiss economy, at a joint breakfast meeting with the media. Mr Meister said that the new SME barometer filled a major void in the range of economic policy instruments both for the business sector and for UBS. Mr Triponez said,"SGV was keen to provide its members with a new barometer that would give a review of how SMEs have been performing as well as an outlook for the future".

The SME barometer, which was developed by economists at UBS Wealth Management Research, is based on the UBS survey that has analysed the economic performance of manufacturers since its inception in 1975. This has now been extended to include a representative sample of SMEs, particularly from the service sector. Details on the methodology used in determining the indicators published in the UBS SME barometer can be found in the appendix.

Overview of the most important findings of the SME barometer

• Strong business growth in the third quarter: The upturn in the SME segment gathered pace in the third quarter of 2006. Even though an impressive 47% of companies surveyed registered higher sales in the second quarter, the figure for the third quarter was even higher at 54%. With positive sales forecasts holding firm and financing conditions remaining favorable, investment activity remains brisk across the board. This is providing particular impetus for those SMEs operating in the manufacturing sector. A net 56% of manufacturers and 51% of service providers registered a more favourable business climate.
  On balance, SMEs benefited more than large companies from the upswing in the third quarter, which also saw the positive trend in sale prices continue. Overall, on balance roughly 10% of SMEs surveyed said they had raised their prices. Higher sales volumes and tighter cost controls stimulated further recovery in earnings; on balance, around 24% of businesses improved their profitability.
  Brisk business activity also had a knock-on effect on the employment data: a net 16% of companies had a higher headcount at the end of June in comparison with the previous year, while the figure at the end of September was 25%. SMEs fared better than large companies here too.

• Year-end shift in growth impetus towards the domestic sector: The expected growth in new orders in the fourth quarter is an indication that the growth impetus is increasingly shifting from the exports to domestic demand. Given the increase in the level of new orders and a strong rise in order backlogs as of end-September, growth prospects would appear to be intact. That said, of the SMEs surveyed, only the service providers expect to sustain the fast pace of growth in sales until the end of the year. However, rising prices are likely to boost profitability. SMEs surveyed also expect to take on new staff overall in the period to the end of December.

• Brisk investment activity to continue: The robust state of the SME sector this year has bolstered investment activity among companies surveyed. A third of SMEs have invested significantly more this year compared with the long-term average, while only one in ten reported lower investment. Based on the UBS survey results, investment activity is likely to remain at similar levels in 2007. Following the increase in production capacity, however, the focus will probably shift more to replacement investment.

UBS SME barometer

Appendix: UBS SME barometer in figures