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UBS outlook, first quarter 2009 - Business downturn at Swiss companies
The business trend of Swiss companies deteriorated abruptly around the turn of the year. According to the latest UBS survey, most of the indicators for the fourth quarter 2008 have descended into negative territory, and the expectations for the first quarter 2009 are even gloomier.
The majority of the some 400 industrial companies polled by UBS in November/December experienced a sharp downturn in their business trend in the fourth quarter of 2008. Orders received, production and sales fell substantially after many years of expansion. Expectations for the first quarter 2009 are even more pessimistic across the board. Similar trends are visible in the services sector, which is now covered in more detail in the UBS survey.
UBS Business Cycle Indicator on the slippery slope
The UBS Business Cycle Indicator, compiled from the results of the Swiss industry survey and a trend barometer for Swiss GDP, is continuing its downward slide. With 0.8% in the fourth quarter of 2008 and 0.4% in the first quarter, it is still positive, but UBS Wealth Management Research assumes that the recession has already set in throughout the Swiss economy and is now forecasting a contraction of 1.2% in real GDP for 2009 followed by weak growth of 0.2% next year.
Headline indicators breach negative territory
Virtually all indicators in the UBS industrial survey showed negative values for the fourth quarter. Companies' responses indicated substantially more declines than increases in orders received, production, order backlogs, earnings and cash flow, and a noticeably large number even reported sharp drops. The downward trend was somewhat more moderate in sales, thanks to robust selling prices. In terms of sales and orders, it was exports that felt the most pressure. The negative business trend is clearly reflected in companies' expectations for the first quarter of 2009. Likewise, employment, which until now had remained slightly positive in the total sample of companies polled, is set to deteriorate considerably.
Export industries lead the downturn
While the overall trend for all industries covered in the UBS survey was clearly negative, the extent of the deterioration varies substantially from one to another. The most heavily hit in fourth quarter 2008 were export manufacturers. Whereas the slowdown already under way in the machinery, electrical, metals and chemicals industries has accelerated, the watch industry turned very abruptly from boom to bust. The food industry was the best in resisting negative business trends due to its primary focus on the domestic market, and its companies expect generally positive trends for the first quarter of 2009 as well.
Similar trends in the services sector
Starting with the fourth quarter of 2008, UBS has extended the coverage of its sector survey to large areas of the services industry. Although longer time periods are not yet available for these sectors and the indicators used are by nature somewhat different from those used in industry, the results nevertheless permit the conclusion that the business trend in the services industry has also deteriorated, albeit to a slightly lesser extent than for industrial companies. Many of these sectors benefit from the fact that they sell mainly to the so far robust domestic market. However, the majority of companies expect a further weakening in the first quarter of 2009.
Daniel Kalt, Head of Economic & Swiss Research
Tel. +41 44 234 25 60
Felix Brill, Economic & Swiss Research
Tel. +41 44 234 35 54
UBS publications and forecasts for Switzerland: www.ubs.com/economicresearch
UBS Business Cycle Indicator and gross domestic product
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