Slowdown in Swiss industry
The downturn in Swiss industrial activity was sharper than expected in the fourth quarter. According to the latest UBS company survey, the mood remains downbeat as the new year begins. Still, a recovery can be expected to start by mid-year.
The sharp decline in growth in Swiss industry continued unabated in the fourth quarter of 2001. According to the results of the latest UBS survey of some 350 industrial firms, the current industrial cycle has yet to reach its trough. In fact, the decline is set to continue in Q1 2002, with the UBS business cycle indicator (which is based on the survey results) signalling a slight contraction in GDP of -0.3% for that period. However, the current downturn seems to be affecting a wide range of companies rather than hitting particular firms especially hard. Despite the distinctly bleak prospects for the short term, there is still every chance that Swiss industry will begin to recover from its current low ebb by mid-year at the latest, as the global economy starts to pick up.
Production scaled back
The Swiss economy has steadily lost momentum since autumn 2000, in line with the slowing of the global economy. The downturn in the industrial sector became even sharper in the final quarter of 2001. The majority of industrial firms surveyed reported a fall in all the key business indicators compared to the prior-year period. Companies in the industrial sector scaled back production for the first time since autumn 1999, in response to a fall in orders received during the preceding quarters. Both domestic sales and exports were down on the prior-year period. Exporters also saw the scope for price increases squeezed. On balance, all survey participants reported weaker earnings as a result.
Downbeat mood continues into first quarter
With orders and backlogs both declining over recent months, the companies surveyed remain pessimistic about the prospects for profits, sales and revenues in the first quarter. No immediate stimulus is in sight from either the domestic market or foreign demand. The industrial firms are reacting to lower production levels by reducing headcount, but on balance they are still expecting work backlogs to fall for the fourth quarter in succession. They are also deeply sceptical about the prospects for earnings, with 40% expecting the situation to deteriorate and only 13% anticipating an improvement.
Wide variations between sectors
With the exception of the food sector, which is focused on the domestic market, all the industries in the UBS survey have been affected by the economic slowdown. Hardest hit were the textile industry, with its heavy dependence on exports, along with the plastics and machinery industries. Each reported a poor quarter in terms of orders received and posted the weakest business performance overall. There is also a widespread view that the economic prospects for the months ahead are unfavourable. Only food and chemicals are hoping for an upturn in business, while the sectors having recently performed least impressively remain the most gloomy. Timber and furniture, metals and electrical engineering are also at the bottom end of the scale. Dissatisfaction with the business outlook is reflected particularly clearly in plans for headcount. Not a single sector is reporting a need for additional staff in the January-March period, and only watchmaking is hoping to even maintain current levels.
Zurich, 1 February 2002