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UBS outlook, 2nd quarter 2009 - Swiss manufacturers and service providers deep in recession
Swiss companies continue to struggle in a difficult market environment. According to the latest UBS survey in the first quarter of 2009, exporters are particularly feeling the heat. Domestically oriented industries and service providers, on the other hand, are not faring as badly. Expectations for the second quarter remain poor.
Some 400 industrial companies polled by UBS in March experienced a further downturn in their business in the first quarter of 2009. New orders, production, sales and earnings melted away, and headcounts were reduced across the board. There is still no end in sight to the slide. This trend is somewhat less pronounced in the service sector. However, the outlook for service providers is also predominantly negative.
UBS Business Cycle Indicator on the slippery slope
The UBS Business Cycle Indicator, which is compiled from the results of a survey of Swiss industry and is a trend barometer for Swiss GDP, is continuing its downward slide. Down 1.2% and 1.5% respectively in the first two quarters of 2009, it provides a clear indication of the Swiss economy's recessionary trend. However, UBS Wealth Management Research expects the negative momentum to increase even further and is forecasting a 2.8% contraction in real GDP in 2009 as a whole.
Collapse in business for export industries
Among the industrial companies surveyed by UBS, order intake, production, sales and earnings collapsed year-on-year in the first quarter of 2009. Only a small minority of firms saw these figures grow, and even signs of a flattening-out were few and far between. However, companies reporting a decline or indeed a sharp drop in business were in clear ascendancy. In particular, companies in the export-oriented capital goods, chemicals and watchmaking industries took a severe hammering. The decrease in new orders from abroad hit these firms especially hard. Businesses in these sectors were also forced to cut back their staff capacities the most. Sectors such as the food industry, which primarily focus on the domestic market, had a considerably better time of it, yet the UBS survey points to dark clouds ahead even for these segments. The construction industry benefited from relatively stable order volumes in the first quarter, although a price war has now begun to exert pressure on sales and earnings.
No recovery in the second quarter
Companies' expectations for the second quarter largely reflect their actual business performance in the first quarter. In practical terms, this means that order intake, production, sales and earnings will continue to fall across the board. The negative trend in sales prices and staffing levels is even likely to accelerate somewhat. Export sectors will continue to be hit significantly harder by the recession than predominantly domestically focused sectors.
Slowdown less pronounced in the service sector
The service companies surveyed by UBS also reported a decline in business in the first quarter, and expectations for the second quarter remain downbeat. Thanks to the service industry's more domestic business focus, the downturn is, however, a lot less pronounced than in the industrial sector. In relative terms, the provision of services for companies, IT providers and the healthcare and social welfare sector is helping to create stability, whereas tourism, trade and logistics are putting downward pressure on the relevant sector averages.
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