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UBS outlook, 2nd quarter 2007 - Industrial activity shifts into lower gear

Zurich / Basel Media Releases Switzerland

Swiss industry is still on the up. The results of the latest UBS survey in March, however, point to a modest slowdown in growth.

After last year's sharp upturn in Swiss industry, growth slowed in the first quarter of 2007 and is expected to stabilize, albeit at a sustained high level, in the second quarter. These are the findings of UBS's survey of around 340 companies in March 2007.

UBS Business Cycle Indicator remains at high level
The UBS Business Cycle Indicator, calculated on the basis of the survey, has to date proven to be a very reliable gauge of the trend in real gross domestic product. With continued annualized growth of around 3% for the first two quarters of 2007, it shows a more positive trend than the official (provisional) figures suggest.

Still very much in positive territory
Net figures for new orders, sales, production and earnings were all a little lower in the first quarter than in the final quarter of 2006, while remaining clearly in positive territory. Overall, more than half of the survey respondents reported higher order intake, and as many as 60% said that production and sales were up. Increasing sales prices led to further earnings improvements, albeit at a slowing pace. High order backlogs forced companies to hire new staff. Headcount in March was thus higher year-on-year at 41% of the companies questioned, while only 13% reported job cuts. Capacity utilization remains well above average at 88.2%.

Costs hampering earnings pickup
Given that demand remains robust despite a slight deceleration in momentum, the companies surveyed by UBS expect all indicators to move up again in the second quarter. This excess demand is allowing more and more companies - both domestically oriented ones and exporters - to raise their sales prices. However, this will not translate into any major improvement in earnings, since prices for industrial inputs and labour costs are rising as well, putting pressure on profits.

Not all sectors are optimistic
Following a disappointing first quarter, plastics, wood and furniture firms as well as those in the printing and graphic design industries expect their business to underperform further over the next few months. By contrast, the export-oriented watches, chemicals/pharmaceuticals and metals industries are the most optimistic. Machinery and paper also expect above-average business.

Cantons' positioning in growth sectors differs considerably

The second-quarter issue of UBS outlook also highlights the longer-term growth potential of the Swiss cantons based on their sector mix. The more a canton's economy is geared to growth sectors, and the more diversified it is across these sectors, the better its longer-term prospects are. In this respect, both Basels, Schaffhausen, Solothurn, Zurich and Aargau are the best positioned. The half cantons of Obwalden, Nidwalden and Appenzell-Ausserrhoden, on the other hand, are in more difficult positions.

UBS Business Cycle Indicator and gross domestic product
(Change yoy in %)

Data (in %)


Daniel Kalt, Head Economic & Swiss Research

Tel. +41-44-234 25 60

Karin Schefer, Economic & Swiss Research

Tel. +41-44-234 43 94