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UBS SME barometer 3rd quarter 2007 - SME business cycle takes off

Zurich / Basel Media Releases Switzerland

Swiss SMEs are continuing their robust expansion. This can be seen from the latest UBS SME barometer, which surveyed around 500 businesses in June. The indicators point to a slight acceleration in growth in the second quarter. Bulging order books and high levels of incoming orders point to intact growth prospects for SMEs in the third quarter.

The broadly based upswing for small and medium-sized enterprises (SMEs) continued in the second quarter of the year. Both the services and industrial sectors have demonstrated some strong increases in incoming orders, order backlogs and sales in comparison with the previous year, and the business climate showed further improvements in comparison with the first quarter. This emerges from the June survey of around 500 companies with less than 250 employees, carried out by UBS in conjunction with the Swiss Industry and Trade Association, which shows that respondents believe that the business climate will improve somewhat more between June and September.

Accelerated growth in the second quarter
The results of the June survey showed the upswing to be livelier than had been expected in March. While export demand developed in line with expectations, domestic demand surprised positively and provided an additional stimulus. Services have benefited more from the upswing than industrial companies. Whilst a net 31% of the industrial companies surveyed reported a continued improvement in the business climate, they were outdone by their counterparts in services, on balance 52% of which reported another such improvement. Sales prices continued to increase as well, resulting in continued improvements in earnings, and high order backlogs forced companies to hire yet more staff. As a result, a net 17% of survey respondents reported higher overall headcount in June than one year ago, but here too, recruitment was higher among service-sector companies than industrial companies.

Continuing growth boosts apprenticeships
The situation at the end of June - increased levels of incoming orders and high order backlogs - suggests that the upwards trend will continue in the third quarter without interruption. The SMEs questioned are convinced that they will be able to maintain sales and earnings at the high levels of the past few months during the period July to September. The service providers are markedly more optimistic than the industrial companies in this regard. Although demand from abroad is likely to remain stable, a further boost can be expected from the domestic market. Thanks to their full order books and their need to meet increasing demand, around one in five of the companies expects to have to recruit more staff and they are increasingly taking on apprentices as well as experienced staff. While 16% of the SMEs questioned will offer more apprenticeships this autumn, only 5% are planning to reduce the number on offer. Around one in five companies also think that they have more scope to pass on higher industrial input costs to sales prices, which is yet another hint that demand momentum is expected to remain high.

UBS SME barometer

Notes: black bars = realized figures for the previous quarters; shaded bars = expectations for the current quarter; balance of the "gains" and "losses" reported (year-on-year) according to UBS survey: business climate = average of the balance of new orders and sales reported

The methodology used in determining the UBS SME barometer
The UBS SME barometer is based on an evaluation of the UBS survey on manufacturing that has been carried out by the Bank since 1975 and which was extended from the third quarter of 2006 to include service providers. Around 700 companies (500 SMEs and 200 large companies), which form a representative cross-section of the Swiss economy, are surveyed every quarter. Any companies employing less than 250 people are classed as SMEs. The barometer reports the balances of the current and expected business climate, employment, sales prices and earnings of SMEs as a whole. These indicators are reported as weighted averages of the performance of each sector (manufacturing/services), with the weighting being based on contributions to value added in the overall economy by these sectors in 2005. The responses obtained from our survey are evaluated using a diffusion index: the balance for each indicator represents the difference between the percentages of companies reporting a positive or negative trend. It does not therefore represent a percentage rate of change. A comparison indicator has also been developed so that the barometer does not only provide information on the economic health of SMEs over the course of time, but is also able to allow a comparison to be made with large companies. It is defined as the balance of the SME business climate less the balance for large companies. Irrespective of the absolute economic situation, a rise indicates a relative improvement of SMEs in comparison with large companies, while a decline indicates the reverse.

Appendix: UBS SME barometer in figures



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