The abandonment of the EURCHF exchange rate floor took a serious toll on manufacturers. The barometer for small and medium-sized enterprises (SMEs) in manufacturing plummeted to -1.29 points in February. It also declined for large companies, but less dramatically, to -0.73 points. The SNB's decision won't just affect exporting manufacturers. The strong franc should also weigh down companies focused on the domestic market.
Zurich/Basel, 9 April 2015 – In February, the barometer for small and medium-sized enterprises fell precipitously from -0.46 points to -1.29 points. The decline was much less pronounced for large companies: it fell from -0.34 to -0.73 points. Both barometers had improved slightly in January compared to December, but virtually all companies answered the KOF survey before the exchange rate floor was abandoned, so the results do not reflect the grimmer outlook.
Large companies tend to struggle less with the strong franc
The barometer worsened across the board for large enterprises and SMEs. Among large enterprises, the year-on-year drop in new orders was particularly sharp; for all other indicators the decline from January to February was fairly moderate. For SMEs, on the other hand, new orders declined, as did production levels and general confidence in the business environment. Large companies may be more broadly diversified than SMEs in terms of currencies and product ranges or may have already offshored part of their production.
The building sector, which is focused more on the domestic market, is unlikely to experience a direct, significant impact from the abandonment of the floor. However, higher unemployment and lower wage growth will likely affect the sector's momentum as a second-round effect. In previous quarters, large enterprises were consistently more upbeat about their order backlog than the SMEs in the sector, but this situation changed in the first quarter of 2015. The order backlog of large companies remained virtually unchanged quarter-on-quarter, while for SMEs it improved dramatically. There was a similar shift in the assessment of the business environment. SMEs were more optimistic than large companies about their situation in the first quarter.
Service companies adversely affected by weaker growth
Even domestically-oriented service companies should experience some medium-term fallout from the removal of the floor. Weaker economic growth, partially caused by lackluster consumer sentiment, will likely spill over to the service sector. Demand for services was still stable in the first quarter, but large companies fared better than SMEs. Momentum has picked up for big enterprises and weakened somewhat for SMEs in recent quarters. In the first quarter of this year, most large service providers described the profit situation as better than in the quarter before. This indicator was unchanged among SMEs.
Tourism is heavily export-oriented and is therefore one of the industries that will probably suffer the most from the strong franc. Around 55% of overnight stays are booked by visitors from abroad. Tourism was already badly hurt by the franc's 22% appreciation throughout 2011, and had not fully recovered. Overnight stays were slightly higher in 2013 and 2014. However, this increase was largely driven by tourists from China and the United Arab Emirates, whose overnight stays were up 70 to 100% between 2011 and 2014. Travelers from Germany still account for the vast majority of overnight stays in Switzerland, but they continued to avoid this country in 2014 (overnight stays were roughly 16% lower than in 2011).
The dire straits in the tourism industry are reflected not only in the number of overnight hotel stays but also in the profit situation. With a few exceptions, profits among SMEs and large enterprises alike have been declining for years.
UBS SME barometer
Industry
Services
Links
UBS outlook Switzerland: www.ubs.com/outlook-ch-en
UBS publications and forecasts for Switzerland: www.ubs.com/investmentviews
UBS AG
Media contact
Sibille Duss, UBS Chief Investment Office WM
Phone +41-44-235 69 54, sibille.duss@ubs.com
www.ubs.com
