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UBS outlook, 4th quarter 2008
Swiss industrial sector shifts down a gear In the third quarter of 2008, the wind has changed in Swiss industry. Although the latest UBS survey confirms that growth stimuli are still around, their momentum is dwindling. Company expectations for the fourth quarter are only just on the positive side.
The results of the UBS survey of some 400 companies in August/September indicate flagging momentum in the Swiss industrial sector. The number of firms reporting an improved trend in business year-on-year was down, while the number of those with a deteriorating trend was up. This has reduced the net balance, but it nevertheless remains slightly positive into the final quarter of 2008.
UBS Business Cycle Indicator signals slowing growth
The UBS Business Cycle Indicator, which is computed from the survey results and functions as a trend barometer for gross domestic product, is thus continuing to ease. Still, at 2.1% in the third quarter and 1.3% for the fourth quarter it is signalling solid growth in the Swiss economy. Despite obvious risks in the global economy and the ongoing financial crisis, UBS Wealth Management Research's main scenario forecasts average growth of 1.0% in 2009 and 1.2% in 2010.
Expectations disappointed, but business trend remains positive in third quarter
According to the UBS survey, the 33% of firms reporting an increase in the volume of orders received in the third quarter only just outweighed those with dwindling order books (net balance: +5). This fell substantially short of the expectations expressed three months previously. Production (+16) and sales (+21) showed a similar trend. The "business trend" indicator calculated from these three components signalled a clear upward trend overall, however. By contrast, the survey results for order backlogs and the earnings trend produced negative net balances of -4 in each case. Surprisingly though, the large majority of businesses (net: +19) continued to increase their headcount.
Widening gap between sectors
The generally positive trend of the UBS survey in the third quarter was attributable in large measure to the food and watch industries. A net balance of 46 and 40%, respectively, of the companies polled in these sectors reported an improvement in business. The electrical engineering and chemicals industries also did better than the average with net balances of +30 and +28, respectively. The textiles (-14), timber & furniture (-8), printing & graphics (-7) and machinery (-2) industries saw declining trends, however. Companies estimate that this widening of the gap between the various industry trends will continue in the fourth quarter of 2008.
Still slightly optimistic for the fourth quarter
Although survey respondents were more cautious in their expectations for all criteria, the results for the final quarter of 2008 are still slightly positive overall. Whereas a small majority (net balance -4) expects lower order inflow versus a year ago, most firms forecast a further increase in output (+10) and higher sales (+12). The business trend is thus likely to show a marginal improvement. Although selling prices (+33) are forecast to continue rising at more or less the same pace, earnings (-12) will come under pressure. The fact that still a good majority of firms (+14) also intend to increase their headcount is a clear signal that companies have not lost their confidence.
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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