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UBS SME barometer: Industry appears past trough
The economic climate improved slightly for industrial companies of all sizes during the second quarter 2016. The sentiment barometer for large companies increased by 0.52 points to 0.24 points. The barometer for small and medium-sized companies rose to -0.16 points from -0.18.
Zurich, 2 June 2016 – During the second quarter, the barometers for industrial companies reached their highest levels since October 2014. For small and medium-sized companies (SME), an increase in incoming orders and a slightly higher order volume in April 2016 were the main drivers for improvement compared to the previous month. However, the expectations for incoming orders during the third quarter were not very optimistic, which may have prevented a higher increase in the SME barometer. For large companies, the increase in incoming orders compared to the previous year, the higher order volume compared to the previous month and higher production levels were primarily responsible for the rise.
Construction companies enjoying balmy economic climate despite decreasing orders
In the second quarter 2016, business conditions were about the same for both company size segments in the construction industry. Companies still assess their current business conditions as good, despite the fact that the dynamics of recent months have slowed down. SMEs as well as large companies have struggled with decreases in orders and eroding earnings, whereby SMEs have been affected by both indicators more severely. As both company size segments of expect decreasing prices in the third quarter 2016, it appears that pressure on margins will not ease in the near future.
Large architecture and engineering firms rated the demand in April as slightly better than during the previous month and better than SMEs within the industry. For SMEs, demand and capacity stagnated compared to the previous months. Both groups assessed their business conditions during the second quarter 2016 more optimistically than the construction industry. However, they also viewed their level of employment as too high, an oddly contradictory finding.
Small service providers performed better than large ones
Large companies in the service sector still rated their business circumstances as good during the second quarter 2016, but nonetheless significantly worse than during the final quarter of 2015 and worse than SMEs. For SMEs, the assessment has only worsened marginally during past quarters, due to somewhat lower earnings and price pressure among other factors. After a long phase with increasing demand, SMEs as well as large companies were faced with a drop in demand during the second quarter 2016 that might reinforce price and margin pressure.
Business conditions improved slightly for large retailers in April 2016 but still rank below the level before the surrender of the EURCHF rate floor. The assessment of business conditions by SMEs remained at a low level, unchanged compared to the previous months. The entire industry is still struggling with low margins and a decrease in earnings compared to the first quarter 2016. Prices remain under pressure and companies are expecting price drops during the current quarter. This difficult situation is mirrored in the level of employment, which companies describe as being too high.
While large companies in the tourism sector rate their business conditions during the second quarter 2016 as merely satisfactory, the same as in first quarter, SMEs are still suffering from the current economic climate. The lack of snow during the winter is assumed to have been an additional strain apart from the currency situation. Earnings continued to be under pressure, regardless of company size, and companies do not expect a recovery of revenue during the current quarter. Therefore, problems with margins are expected to persist within the tourism industry during the current quarter.
UBS SME Barometer