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UBS outlook Switzerland Q3 2010 - A strong domestic economy and a strong franc pose a dilemma for the Swiss National Bank

Zurich / Basel Media Releases Switzerland

The Swiss economy continues to grow. UBS Wealth Management Research expects the Swiss National Bank to tighten its monetary policy in September in order to slow down domestic economic activity and the real estate market.

UBS Wealth Management Research (WMR) forecasts GDP growth for Switzerland of 2.5% in 2010 and 2.1% in 2011. The UBS Business Cycle Indicator confirms UBS's positive assessment and continues to point upward for the third quarter - it points to growth of 2.0% and 2.5% during the second and third quarter, respectively. As a consequence of economic growth, the labor market's development is also very encouraging – WMR forecasts an average unemployment rate of 3.9% for this year and 3.4% for next year. The average inflation rate is likely to reach 1.0% this year and is expected to increase to 1.5% next year.

In the latest edition of the UBS outlook Switzerland, WMR highlights that the strength of the domestic economy poses a dilemma for the Swiss National Bank (SNB). To ensure sustainable growth, the domestic economy and the real estate market need higher interest rates, while exporters require a weaker franc. However, the two needs are diametrically opposed. In order to avoid inflation and calm the real estate market, the SNB will ultimately have to tighten monetary policy.

The UBS outlook Switzerland also takes a detailed look at the consequences of the strong franc in the tourism industry, and suggests how entrepreneurs and affected parties can hedge against a rising franc. In addition, WMR presents the detailed results of its company survey on the course of business.

WMR's quarterly company survey reveals a dynamic recovery in the Swiss industry during the second quarter. New orders, revenues, production and even returns increased year-on-year. There was an end to redundancies. Switzerland's mechanical engineering, electrical and metal (MEM) industry posted sound results in the second quarter of 2010 with new orders picking up. Production, turnover and profits were up compared to the previous year, and order backlogs increased while the stock of finished goods remained unchanged. The participants in the mechanical engineering industry survey expect an end to staff cutbacks in the third quarter. The outlook for the summer quarter is relatively positive, both in the MEM industry as well as for industrials overall. However, many survey participants are concerned about a further strengthening of the Swiss franc.

According to the quarterly survey, the Swiss service sector posted restrained growth. The recovery would appear to be slower here than in the manufacturing sector, as service providers were less affected by the recession than industrial enterprises.


Caesar Lack, Economics & Swiss Research
Phone +41 44 234 44 13

Carla Duss, Economics & Swiss Research
Phone +41 44 234 21 19

UBS publications and forecasts for Switzerland:

UBS Business Cycle Indicator and gross domestic product
(Change yoy in %)

The UBS Business Cycle Indicator: a barometer of the Swiss economy since 1975
Since 1975, UBS has conducted quarterly surveys of companies operating in Switzerland concerning their business outlook. UBS economists have drawn upon this data to develop an economic indicator designed to provide reliable forecasting of the outlook for the Swiss economy. The following survey elements flow into the calculation of the economic indicator: change in total incoming orders versus the previous quarter, projected change in orders for the next quarter, change in domestic and international incoming orders, production, finished goods inventories, staffing levels and order backlog.