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UBS outlook update 1st quarter 2007 - Swiss industrial activity has passed its peak

Zurich / Basel Media Releases Switzerland

Strong momentum from exports helped Swiss industry continue to expand in the fourth quarter of 2006, but companies expect growth to slow in the first quarter of 2007. These are the results of the latest UBS quarterly survey, which polled some 330 Swiss industrial companies in January.

Swiss industry posted a strong end to the year in the fourth quarter of 2006. While expectations for the first quarter of 2007 are somewhat more restrained, headcounts will continue to be expanded vigorously. This is the conclusion of a survey of some 330 companies in January by UBS economists. According to the survey, sales at nearly three-quarters of the companies surveyed continued to grow in the fourth quarter of 2006. Only one in ten companies reported a decline in sales.

New orders, production and backlogs were also very positive in the fourth quarter. Average capacity utilization climbed to 89.5%, exceeding the long-term average by about three percentage points. Despite the increase in sales and production, order backlogs continued to rise slightly to the end of December. This indicates that growth prospects remain intact. Earnings improved as prices continued to rise.

While companies profited from strong domestic demand, they also received an unexpectedly strong boost from exports, which were supported by a weak franc and the buoyant global economy.

Nearly four in ten companies continue to seek staff
Despite the strong economic data, industrial activity has probably peaked. While the companies surveyed expect production, sales and earnings to remain at a high level from January to March 2007, the average results for the first quarter are expected to be lower than the figures for the final quarter of 2006.

Because order books are very well filled and production is near capacity, payrolls continue to experience robust growth. For example, 38% of the companies expected higher headcounts by the end of the first quarter compared to a year ago, while only 14% expected to reduce staff. And more and more companies see room for passing on higher industrial input costs to sales prices, a clear indication that companies expect demand to remain solid, albeit somewhat flatter.

UBS Business Cycle Indicator points to strong final quarter
The extremely positive survey results for the final quarter indicate that the overall Swiss economy also picked up at the end of the year after losing some steam in the third quarter. This is the picture that emerges from the UBS Business Cycle Indicator, which is calculated from the quarterly survey data and provides a reliable signal as to Switzerland's likely economic growth two quarters in advance of the official GDP figures. However, we expect growth in Switzerland to slow somewhat this year as a result of the looming global economic slowdown, particularly in the US, although real GDP growth should still average about 1.8%.


Hans-Peter Hausheer

Economic & Swiss Research

Tel. +41-44-234 67 32

Andreas Breitenmoser Bürki

Economic & Swiss Research

Tel. +41-44-235 39 43

Karin Schefer

Economic & Swiss Research

Tel. +41-44-234 43 94

UBS Business Cycle Indicator and gross domestic product
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