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Industrial firms remain cautiously optimistic.
As expected, the first quarter of 2001 saw the pace of economic growth continue to slacken. The slowdown has filtered through to Swiss industry, which expects its rate of expansion to ease in the first half of the year. The UBS survey of business sectors shows, however, that the underlying mood among companies remains upbeat.
After expanding at a near-dizzying pace in 2000, Swiss industry is likely to shift into a lower gear in the first half of 2001. Nevertheless, the UBS March survey shows the economy is still on a solid upward path. The results of the survey, which has been conducted on a quarterly basis since 1975 among 300 industrial companies, have proved to be a reliable indicator of short-term trends in the Swiss economy. The UBS business cycle indicator, which serves as a useful gauge of GDP, indicates a slowdown in the growth rate for the first quarter of 2001 to 2.2% over the prior-year period, with a further easing to 2% in the second quarter.
The industrial sector saw a significant continued slowdown in the January to March period. Nevertheless, the business cycle indicators examined in the survey point to an overall upbeat economic situation. Survey repsondents have reported many more increases than decreases across all criteria. Although the forecasts for exports were not fully met, foreign demand provided a bigger spark in the first quarter than domestic demand did. Half of the survey respondents reported an increase in sales, while only one in six reported a decrease. With order backlogs high, production compared to last year has once again been expanded and staff has been added. Headcounts were higher at the end of March in all sectors except for textiles, clothes, and timber & furniture. On balance, price increases were reported by 27% of the industrial firms in the survey. Profits, however, were up at only at a net 16% of the firms surveyed, as higher costs due to increased staff, rising purchasing prices, an unfavourable exchange rate for exports, and the new Federal levy on road hauliers cut into earnings.
Industry stabilizes at a respectable level
Swiss industry is forecasting a solid second quarter. Reports of increases are well ahead of decreases across all the major criteria, and are more or less at last quarter's respectable level. Thus the GDP growth rate should stabilize at about 2%. A strong spark is still expected to come from export orders. But forecasts for domestic demand are also positive. The industrial companies surveyed are planning once again to expand their production. The employment picture remains intact. The only sectors that said there would be a reduction in headcount in the April to June period were the textile and food industries. In contrast, chemicals and watchmaking are reporting the biggest need for additional labour.
Not all sectors experienced a slowdown
The rate of expansion did not drop off in all industrial sectors in the first months of 2001. In the chemical and food industries in particular the upward momentum continued unabated, giving these two sectors the best business results of all Swiss industry in the first quarter. In contrast, the machinery, electronics, metals and textiles industries lost some momentum due to weaker demand from abroad. Growth in the domestic-oriented timber & furniture industry was also considerably slower, with orders down on a cross-sector comparison, and the sector is therefore also less confident about the second quarter. Timber & furniture is in last place among Swiss industrial sectors, behind textiles. The capital goods industries of electronics and machinery are also expecting a below-average trend for orders received, production and sales. The most optimistic sectors are chemicals, food and watchmaking.
Private and Corporate Clients Division
Zurich / Basel, 04 April 2001
UBS business cycle indicator and Swiss GDP
(% change year-over-year)
Sources: seco (GDP); UBS (survey and calculations) *preliminary official data