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UBS outlook, 4th quarter 2007 - Swiss industry at the limits of its capacity

Zurich/Basel Media Releases Switzerland

Activity in the Swiss industrial sector is still running at full speed. According to the latest UBS survey in September, capacity utilization has reached a peak. The majority of companies remain confident for the current quarter.

The solid uptrend in Swiss industry continued unabated in the third quarter of this year, as is clear from the findings of UBS's survey of some 340 companies in September 2007. The expectations for the current quarter are also optimistic.

The UBS Business Cycle Indicator points to robust economic growth
The UBS Business Cycle Indicator, calculated from the results of the survey, continues to predict high annual growth rates of over 2.5% for the Swiss economy in the third and fourth quarters. Since the beginning of the year, the indicator has consistently anticipated the upward adjustments in official GDP figures, thereby confirming its reliability as a trend barometer of real GDP.

Capacity utilization hits its peak
61% of survey participants reported an improved third-quarter business trend, including orders received, sales and production. Export orders were particularly strong, with 52% of firms reporting an increase. But also domestic demand remained brisk with 41% registering a rise. Production capacities were operating at a higher rate than ever: a full 91.4%. While 40% of respondents hired additional staff, only 12% were forced to reduce headcount.

Slight fall-off in earnings momentum
Expectations for business in the fourth quarter of 2007 are only marginally more restrained, and the majority of businesses are therefore counting on being able to raise prices further. At the same time, however, the increased cost of inputs and payrolls is becoming more noticeable. The substantial growth in earnings of late is thus likely to be somewhat dented. Nevertheless, a solid 38% of survey respondents forecast higher, and only 18% lower, corporate earnings than a year earlier.

Broad-based growth across sectors
The encouraging overall picture of Swiss industrial activity disguises a somewhat more mixed picture in individual sectors. The leaders in the third quarter were the watchmaking, chemical/pharmaceutical and timber & furniture industries, while the plastics and food industries lagged behind. Representatives of the textile, watchmaking and paper industries are particularly optimistic for the fourth quarter. The most subdued responses came, however, from the plastics producers.


Daniel Kalt, Head of Economic & Swiss Research
Tel. +41 44 234 25 60

Felix Brill, Economic & Swiss Research
Tel. +41 44 234 35 54

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