Zurich, 3 September 2015 – At –0.58 points in July, the barometer for small and medium-sized industrial enterprises (SMEs) outperformed the June value of –1.47, reaching its highest level since the abolition of the EURCHF exchange rate floor by the Swiss National Bank. Although all sub-indicators improved, primarily new orders, order backlogs and production levels (compared with the previous month) contributed to the barometer’s rise.
The barometer for large industrial companies also rose in July compared to the previous month (by 0.7 points to –0.65 points). However, the improvement was lower than in the case of SMEs, and the best index value recorded in May since the abolition of the exchange rate floor was not reached. However, the drivers of the improvement were more broadly based for large companies. Thus, for example, the month-on-month gain in incoming orders and in particular compared with the previous year contributed to the higher index value.
Incoming orders in the building sector under pressure
The economic slowdown also became evident in the building sector, albeit slightly later. Incoming orders declined for the first time since 2009, in the case of large companies, and since 2010 in the case of SMEs; the decreasing momentum had been evident in the construction industry for some time. Despite a drop in incoming orders and falling returns, the companies nevertheless still assessed their business situation as good in July. Both business groups anticipated a slight let-up in terms of prices, although these are likely to remain under pressure.
The business situation continued to develop well in the third quarter in the case of architecture and engineering firms. Slightly weaker momentum was recorded for SMEs as well as large companies, and the number of companies that assessed their business situation as worse increased, which could reflect their declining earnings. In the case of large companies, a negative trend in earnings has been observed for several quarters.
The franc's appreciation advances lower price trend among service providers
Despite a slight decline in momentum, service companies still assessed their business situation as good in the third quarter, with SMEs assessing their economic situation slightly better than large companies. This ease in momentum is likely to be due to the anticipated lower prices and a drop in demand. The trend to lower prices is nothing new, but the Swiss franc has advanced it. Demand for services has declined significantly since January especially in the case of large companies. However, in the case of SMEs, demand improved slightly in the third quarter.
Although retailers benefited from lower import prices in the case of some products, they suffered under the current economic situation and assessed it as bad. Profits tailed off more sharply for SMEs than for large companies. In addition, the SMEs in particular expect sales to drop sharply in the fourth quarter, which will hardly help profits.
Tourism still declining
Although the downward trend slowed somewhat for businesses in the tourism sector, the economic situation in the third quarter was gloomy. Both sales and earnings worsened quarter-on-quarter. According to the survey results, the economic situation in the third quarter was worse than during the times of the Swiss franc’s massive appreciation in 2011.
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Sibille Duss, UBS Chief Investment Office WM
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