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UBS Outlook 1st Quarter 2004
UBS Business Cycle Indicator confirms upswing. Pulled along by accelerating momentum in the global economy, Swiss industry reported an improving trend of business in the final quarter of 2003. A further pickup is expected in the current quarter. The UBS Business Cycle Indicator is signalling a move into positive growth territory for the economy as a whole.
After a decidedly sluggish performance over large stretches of the year, Swiss industry reported a clear uptrend in the final quarter of 2003. This is the conclusion from the latest UBS quarterly survey of over 300 industrial companies conducted in December last year. After more than two years of decline, orders received registered a sharp upturn in the fourth quarter and sales in both foreign and domestic markets increased year-on-year. The upswing now underway at industrial companies should continue to gather momentum in the current quarter.
This optimistic view is confirmed by the UBS Business Cycle Indicator, which is computed from the results of our quarterly corporate survey and signals the development of gross domestic product (GDP) two quarters ahead of official data. Following the negative trend of the first nine months of 2003, economic activity is likely to pick up at the latest in the first quarter of 2004, registering positive year-on-year growth rates.
Strong impetus from abroad
The results of the September survey had already pointed to a distinct improvement, and this optimistic outlook has now been confirmed. Fuelled by the global economic recovery, orders from abroad rose as expected and Swiss industry was able to report a marginally positive business trend for the first time in two years. Domestic orders, on the other hand, were still down slightly. Overall, sales were up and production held firm at the previous year's level thanks to the advanced stage of the inventory cycle. The decline in order backlogs was less sharp than before. Another positive sign is that average capacity utilization in industry was some two percentage points higher, at 85%, bringing it significantly closer to its long-term average of 87%.
Clear signs of an upswing
According to business, the upward trend should emerge more clearly during the current quarter. Some 37% of all firms surveyed expect an increase in exports, whereas only 14% reckon on a negative trend. Sales in the domestic market are also viewed in a similarly positive light. One in six firms on balance is planning to up production. Given companies' full order books, their improved capacity utilization and the gradual impact of cost savings programmes, we are also likely to finally see some uptick in earnings. This rebound could remain somewhat limited, however, given the continued pressure on prices. There is still no turnaround in sight on the jobs front. Only 13% of companies responding need to hire additional staff in the months January to March, whereas 25% are planning further reductions in headcount. Compared with the fourth quarter, however, when every fifth firm was forced to trim the workforce, this can still be seen as the beginnings of an improvement.
UBS Business Cycle Indicator and gross domestic product
(Change year-on-year in %)
Sources: seco (GDP); UBS (survey and calculations)
*provisional official figures
Zurich / Basel, 30 Januar 2004