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UBS outlook 2nd quarter 2005
Temporary slowdown in industry Swiss industrial growth in the first three months of 2005 slowed somewhat more sharply than firms had originally forecast. According to the latest UBS survey, however, there is now a good chance of a renewed pickup in the second quarter of the year.
The latest UBS quarterly survey of some 300 companies in manufacturing industry conducted in March confirms that growth weakened further at the start of 2005. The domestic economy in particular experienced a sharp downturn, and export demand too was less buoyant than hoped. Despite this, the business indicators evaluated in the survey still suggest that the overall economic situation remains promising. After peaking in the third quarter of 2004, business activity has now returned to its long-term average for the last 30 years or so. Firms are also reassured by the expectation that business will improve again this quarter, and are therefore not especially concerned by the current slowdown.
Business activity returns to normal
According to the UBS survey, the net values (difference between the number of positive and negative responses) for orders received, production, sales and work backlogs were all lower in the first quarter of 2005 than in the prior quarter, but are still firmly on an upward path. 43% of survey participants reported higher levels of orders received, and 39% succeeded in increasing sales, while only 24% and 27% respectively saw a decline in these indicators. The fact that earnings contracted for the first time after four quarters of growth is due to both the continuing erosion in prices and the - in some cases sharp - rise in the costs of materials and energy. Most sectors of industry have yet to see a halt to the process of headcount reduction that has been under way for 13 quarters now. Only 19% of firms reported higher staff numbers at the end of March than a year earlier, while 28% had implemented cuts.
Broad spectrum of sectoral trends
Trends are differing across the sectors covered by the survey: the majority of segments reported a slowdown, while plastics was stable; printing and graphics, meanwhile, experienced an uptrend. Despite signs of an improvement in the otherwise dismal climate for the paper industry, paper, textiles and machinery are the only sectors to report a deterioration in business compared with a year back. At the top end of the scale, the chemicals and pharmaceuticals, metals and watchmaking industries were the growth leaders.
Chances of recovery intact
With domestic and foreign demand set to strengthen, companies are expecting an upturn in the period April to June, and this should be reflected in higher sales growth and improved earnings. 47% of firms are forecasting an increase in sales, with only 14% predicting a decline, and manufacturers are also expecting a modest rise in capacity utilization as companies ramp up production. However, there are still no signs of firmer prices or staff numbers, with both indicators likely to continue pointing downwards.
Business cycle indicator difficult to interpret
In line with the weaker industrial business trend in the first quarter, the UBS business cycle indicator points to slower growth in the first half of 2005. This trend barometer, which is calculated solely on the basis of the actual survey results but filters out the expectations of survey participants, anticipates official GDP data by two quarters and is a very reliable guide to the near-term economic trend in Switzerland. This time, however, it is difficult to interpret, as it suggests significantly higher economic growth for the fourth quarter than the provisional figures for GDP estimate was actually achieved (+1.2%). This could indicate that the turnaround is having a less than uniform impact, but could also point to a later upward revision of the GDP figures.
Zurich / Basel, 12 April 2005 UBS
Dr. Daniel Kalt, Head of Swiss Economic Research
Tel. +41 44 234 25 60
Karin Schefer, Swiss Economic Research
Tel. +41 44 234 43 94
UBS Business Cycle Indicator and gross domestic product
Change year-on-year in %
Data (in %)