Companies are confident

UBS Outlook Switzerland

08 Nov 2018

DE | FR | IT


How do you think your company’s business performance will change in 2019 compared to 2018?

2,498 responses, diffusion index with a scale: 0 (perform poorly), 50 (perform the same) and 100 (perform better)

Source: Intervista, UBS

Most companies believe the economy in 2019 will be as good as or better than it has been this year, and they are planning to invest more and create jobs. Aggregating the responses in an index, the confidence value for 2018 is 62.2 points and for 2019 65.6 points.


How important are the following risks for your company?

2,498 responses, percentage of companies describing risk for their company as medium-high to high

Source: Intervista, UBS

The current risks are causing relatively little concern for companies. “A sharp domestic economic slowdown” is rated as a significant risk by two-thirds of companies. However, companies with 250 or more employees assign greater weight to the risks than small and medium-sized companies.


How affected are you by the risk “trend toward increased protectionism”?

2,498 responses, percentage of companies describing risk for their company as medium-high to high

Source: Intervista, UBS

For example, nearly half of large companies view protectionist tendencies as a risk, while fewer than a third of small companies hold this view. As international risks are generally not very substantial for many companies, more than two-thirds have taken no measures to hedge against these risks.


How much is your company affected if the franc exchange rate rises/falls permanently by 10%?

2,498 responses, percentage of companies partly or heavily affected by an unfavorable movement in the exchange rate

Source: Intervista, UBS

Two-thirds of companies would not be affected by a long- term increase or decrease in the value of the Swiss franc. However, there are major differences depending on the size of the company and the sector. While manufacturers, retailers, the tourism industry and, more generally, large companies (53%) would be affected, this is not much of an issue for companies with a domestic focus healthcare, social services and the public authorities.

Companies are confident

UBS Outlook Switzerland



Economy & Financial Markets

Global Economy

  • The world economy continues to perform well. Economic trends suggest that growth this year will match that of last year. In developed markets, strong labor markets are slowly lifting wages. Income growth is being spent. In the US and the UK, retail sales volumes are growing faster than last year. In Europe, volume growth rates are generally slightly slower, but still good. About a third of the US tax cuts are likely to be spent on imports, widening the trade deficit. Most of the US trade tariffs (tax increases) to-date are likely to redistribute, rather than reduce, global trade.
  • US investment is reportedly being delayed by trade tensions, and trade issues may slow US growth later this year. However, US consumer savings are stronger than previously thought, adding potential spending power.
  • Companies are finding it easier to raise prices. PPI is generally higher than in the recent past. US trade taxes (on metals and washing machines) have visibly been passed on to customers. Wage growth in both the US and Europe is consistent with some modest rise in price inflation. Labor costs typically make up about 70% of a developed economy's inflation.

Swiss Economy

  • The Swiss economy is likely to grow by 1.6% next year. This corresponds to long-term trend growth but is significantly lower than our GDP growth forecast of 2.9% for this year.
  • Export and investment growth is likely to slow next year on the back of a weaker global outlook. In contrast, consumer demand may benefit from a stronger labor market. An improving capacity utilization and high oil prices are likely to support inflation.
  • Various economic and geopolitical uncertainties weigh on next year’s outlook. The biggest risks for the Swiss economy stem from Italy’s fiscal policy, a significant cooling of the European economy and the possibility of a global trade war.

Currencies

EURCHF

  • We are keeping our EURCHF forecasts at 1.12, 1.15 and 1.20 over three, six and 12 months. For the pairing to rise, better Eurozone economic data is needed, in our view.
  • The ECB is moving to normalize its policy, but the road remains bumpy. Key risks are the Italian budget, Brexit, and the negative impact of US tariffs on global trade and weaker economic data.
  • The Swiss National Bank is maintaining its adaptive policy stance as currency markets remain fragile and the CHF is exposed to sudden appreciation.

USDCHF

  • We're keeping our USDCHF forecasts at 1.02, 1.00 and 1.00 in three, six and 12 months, respectively. The search for safe havens is likely to continue and favor the USD over the CHF.
  • The tensions around trade policy, Italian politics and the stability of global growth are prompting risk aversion in the short term. The USD is favored due to its attractive yields and high liquidity.
  • In 2019, we see an increasing chance that USDCHF will drop as euro strength carries the CHF along with it, while the Fed inches closer to the end of its rate hike cycle.

Fixed Income & Monetary Policy

  • In an environment characterized by risks, the SNB will stick to its cautious monetary policy. We only anticipate an SNB rate hike at the end of 2019, after the ECB will have increased its interest rates.
  • The SNB refrained from intervening in foreign currency markets in the last quarters. However, should the tensions between Italy and the EU with respect to fiscal policy escalate and the Swiss franc appreciate, the SNB could return to the markets.
  • The SNB may reach the limits of its current monetary policy toolbox in the next downturn and therefore may have to explore new tools to make monetary policy more supportive. To do so, it could lift its inflation target or even abolish (physical) cash.

Real Estate

  • Prices for owner occupied homes increased in nominal terms by 0.4 percent in the third quarter of 2018. However, bid prices remained unchanged during the one-year period.
  • Offered rents declined both quarterly and year-on-year.
  • While we expect nominally only slightly rising prices in the market for owner occupied homes in the coming quarters, we expect a further decline in offered rents.

Sectors

  • Industrial companies assess their business situation as good, with all sub-indicators providing support.
  • Service companies have posted a modest recovery from their first-half weakness and now rate the business situation as improved.

UBS Swiss economic forecasts

% change yoy (real terms), adjusted for seasonal & calendar effects

Forecasts UBS

 

 

Level*

2016

2017

2018F

2019F

2020F

Gross domestic product

668.6

1.6

1.7

2.6

1.5

1.7

Private consumption

359.6

1.5

1.2

1.0

1.6

1.7

Government spending

80.1

1.2

0.9

1.0

0.5

0.6

Capital spending

164.4

3.5

3.4

2.3

1.0

1.3

 

Construction

61.4

0.4

1.3

1.3

0.8

0.8

 

Equipment

103.0

5.3

4.6

2.9

1.2

1.6

Exports**

 

362.0

7.0

3.8

1.5

0.9

3.0

Imports**

 

287.5

4.7

4.2

2.0

1.5

3.1

Inflation

 

 

-0.4

0.5

1.0

1.0

1.0

Unemployment rate***

 

3.3

3.2

2.6

2.5

2.5

Charts on the Swiss economy

A very useful package of charts may be downloaded here, giving the current economic forecast, trends of the main macro and monetary variables, sectoral structures and developments as well as other aspects of interest regarding the Swiss economy. If you have them printed on transparencies, these charts may fit very well in your presentations.

Download the full report here

enpdf

depdf

frpdf


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