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UBS SME barometer: Recovery for industrials not yet in sight
The prospects for industrial enterprises remain bleak. However, large enterprises are reporting less difficulty with the current economic situation than small and medium-sized enterprises. The barometer improved slightly from -0.80 to -0.58 points over the past three months for large enterprises, but fell 0.33 points to -1.02 points for small and medium-sized enterprises. Domestically-focused service providers tend to do better, but they too are unable to entirely escape the economic slowdown.
Zurich, 3 March 2016 – A recovery is not yet in sight for industrial enterprises. Small and medium-sized enterprises (SMEs) are reporting greater difficulty with the current economic environment than large enterprises with more than 250 employees. Since abandoning the EURCHF minimum currency exchange rate, the SME barometer has fluctuated around -1 point and fell to -1.02 points in January following a value of -0.69 points this past October. The barometer for large enterprises improved by 0.22 points since October to -0.58 points in January, slightly above the -0.71 point average for this period. Although January's index values for both company sizes were below the long-term average value of 0 index points, they were still higher than those recorded in the wake of the financial crisis in 2009.
Production level continued to decline for industrials
Despite lower index values in the barometer, SMEs did not perform worse than large enterprises for all sub-indicators. The production level for both enterprise groups fell in January. But while the downward trend eased for SMEs, it continued unabated for large enterprises. The foreign order backlog, meanwhile, deteriorated for both enterprise groups but large enterprises fared better than SMEs. Both enterprise groups had to contend with falling prices, which are unlikely to change by year-end. For the coming year, UBS expects an inflation rate of -0.4 percent.
Construction companies anticipate a further cooling down of the economy, including in the current quarter. The order backlog will likely decline further, and profits are also expected to continue to trend negatively. But most construction companies continued to consider the state of business to be good. This does not hide the fact that since the recession in 2009, construction companies have not evaluated the economic situation as poorly as in the first quarter of this year. For architecture and engineering firms, business momentum has likewise slackened in recent months. Accordingly, the slowdown has had a greater impact on large enterprises than on SMEs. This assessment was also apparent in the anticipated level of provided services in the first quarter, where large enterprises were more pessimistic than SMEs.
Falling profits for service providers
Service providers are expecting falling profits in the first three months of the year. This somewhat bleaker assessment is also reflected in the evaluation of the state of business and with regard to price behavior. Although in January both large enterprises and SMEs still characterized the state of business as good, the momentum slowed noticeably for service providers. For the second quarter, companies are continuing to expect falling prices, which is likely to strain profits in the future.
For the first time since abandoning the minimum currency exchange rate, large tourism companies rated their state of business as satisfactory. However, most sub-indicators for large enterprises continue to be somewhat pessimistic. Large enterprises estimate that both profits and sales will decline in the first three months. In this regard, they are no different than SMEs, which also expect a decline in the two indicators mentioned. However, SMEs expect the downward trend in sales to ease in the first three months, whereas the expectation of large enterprises is likely to worsen further.
UBS SME barometer