Following the abandonment of the EURCHF exchange rate floor, the barometer for the manufacturing sector plummeted in both size categories. Conditions improved somewhat for industrial enterprises in April.
Zurich/Basel, 4 June 2015 – The barometer for small and medium-sized enterprises (SMEs) in manufacturing rose to –0.68 points in April from –1.28 points in March. Large companies, which had been less affected by the strong franc than the SMEs, saw the barometer rise to -0.18 points from -0.85. However, April's values still came in below the long-run average of 0.13 points for SMEs and 0.15 points for large enterprises. The improvements in both groups were largely due to month-on-month increases in new orders and a somewhat more optimistic attitude overall with regard to many indicators. The slightly more optimistic sentiment was probably buoyed by the somewhat weaker franc as well. Despite the improved EURCHF exchange rate, the foreign order intake remained rather sluggish and was described as very bad.
Companies were particularly pessimistic about their income situation in the second quarter. SMEs and large businesses had not seen an improvement in income since 2011, but the survey showed a sharp decline in the second quarter. Nonetheless, large companies still outperformed SMEs in this indicator, as with most of the metrics. One worrying note in April: employment in the manufacturing sector was described as "too high" despite the brief rally at the end of the year. UBS economists assume that the strong franc will drive up layoffs, and foresee overall unemployment in 2015 of 3.6%.
Construction sector cannot completely escape downward trend
Momentum slowed significantly in the construction sector, particularly for large enterprises. They still classified the business situation as good overall, but a growing proportion now describes business as bad or satisfactory. SMEs, by contrast, reported another slight improvement in the business situation in the second quarter. The difference is likely due to the fact that SMEs in the construction sector saw order backlogs rise, while large companies saw them fall. There were no visible differences in terms of earnings, however.
Service companies still generally assessed the business situation as good in the second quarter, although it has lost some momentum. SMEs, however, viewed business as slightly worse than large enterprises. The other indicators did not look much better in the tertiary sector than in manufacturing in the second quarter. Demand and income deteriorated in both size categories. Service providers also expect sales prices to decline in the near future.
Tourism and retail suffering
The dwindling margins and shopping tourism that resulted from the Swiss National Bank's (SNB) decision to unpeg the Swiss franc from the euro will cause the most suffering in the retail sector, alongside the tourism industry. Large retailers still described the business situation as satisfactory in April. However, the income situation has worsened. Large companies were more cautious about their expected revenue. The SNB's decision left a considerable mark on small and medium-sized retailers as well. While respondents have been describing business as bad for the past year, all other indicators deteriorated significantly again in April. The situation is even grimmer in the tourism industry, where all the indicators worsened regardless of company size.
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Sibille Duss, UBS Chief Investment Office WM
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