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UBS SME barometer: Marginal deterioration compared to second quarter

Zurich Media Releases Switzerland

For industrials of all sizes the barometer rose slightly in July over the previous month. While SMEs were slightly less confident than the long-term average reading, at -0.23 points, large companies managed to stay just above theirs, at 0.15 points. The assessment of SMEs in the services sector also improved marginally in the third quarter.

Zurich, 01 September 2016 – The barometer for small and medium enterprises (SMEs) improved again slightly in July, to -0.23 points from -0.32 in June While incoming orders and companies' expectations of future production levels were more pessimistic, the business climate and orders from abroad were judged to be slightly better; even production levels rose a bit. The barometer for large companies also climbed a notch to 0.15 points in July from -0.14 last month, which was above the long-term average. The increase in incoming orders and the improved assessment of the business situation provided some grounds for optimism, but the lower production levels hindered an even greater rise in the barometer.

Disappearing order books in the construction industry
Order books shrank for construction companies of all sizes compared with the previous quarter, and this was particularly noticeable among SMEs. Even though companies still assessed the business situation as good, momentum continued to flag, especially among SMEs. For large companies on the other hand, momentum has stabilized at a somewhat lower level in recent months, and this is noticeable in terms of profits. But large companies still find themselves in a more comfortable situation than SMEs. While the SMEs expect prices to stabilize and profit situations to ease a little, large companies expect prices to keep falling until the end of the year.

Things looked a little better among architectural and engineering firms, for whom business conditions stabilized at a somewhat lower level. Even so, the benign economic environment for these companies is only partially reflected in other indicators. For example, the workload of large companies has fallen, albeit minimally, in recent months and expectations in terms of prices are also pessimistic.

Brighter prospects among service providers
Service providers' evaluations of business conditions remained positive this quarter, having stabilized for large companies and even brightened for SMEs. This improved outlook for SMEs could be due to, among others factors, their better earnings, which remained at the same level as the previous quarter; profits for large companies fell. Prices are likely to keep falling and companies of both size classes are still not expecting things to turn around. We also expect inflation to remain below zero this year, at -0.3%.

The business situation for retailers has deteriorated in recent months. SMEs suffered worst from the current economic conditions, characterized by a strong currency and flagging momentum. SMEs assessed the current situation as worse than after the removal of the exchange rate floor. Profits fell significantly in all business groups in the third quarter. SMEs remain pessimistic about the second half of the year and anticipate falling sales; large companies are expecting a stable volume of business. In keeping with the service industries in general, retailers of all sizes expect prices to fall, and this trend was seen again in July among the large companies.

There is still no sign of light at the end of the tunnel for tourism companies. Irrespective of their size, companies' sales and earnings both fell in the third quarter. Business conditions continued to deteriorate after having been assessed as good in the first quarter.

UBS SME barometer

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Sibille Duss, UBS Chief Investment Office WM
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