UBS outlook 1st quarter 2006. Swiss business sectors in good shape.
For the vast majority of sectors in the Swiss economy, 2005 was a good year. Sales and earnings were both up. The outlook for 2006 is judged to be nearly as good, with pharmaceuticals and financials slightly ahead of the others. This results from a broad-based survey carried out by UBS of more than 4,700 companies in 27 main sectors and 97 sub-sectors.
Corporate expectations for 2005 expressed a year ago turned out to be highly accurate in terms of all the criteria surveyed by UBS: growth in sales, earnings, selling prices, personnel and investment. Only nine of the 27 sectors fell short of their growth targets; about half did not fully meet their earnings forecasts, although the biggest discrepancies were in sectors that were already at a high level (insurance, telecommunications); and there were also some positive surprises (banks, pharmaceuticals).
Banks, watchmaking, pharmaceuticals and chemicals posting highest volume growth
The business recovery continued almost unbroken across the various sectors last year. Banks, watchmakers, pharmaceuticals and chemicals remained the most expansive in 2005. Retail trade, on the other hand, only narrowly avoided stagnation, while automobiles was the only sector that saw sales slightly dipping.
Steady progress in earnings
After the earnings spike in 2004, it was predictable that the growth trend in this sector would not continue unabated, so it is particularly gratifying that results for this criterion in all sectors were only slightly lower in the 2005 UBS survey than a year earlier. Banks, pharmaceuticals, electrical engineering, IT and watchmaking posted particularly strong earnings, while only the automobile sector, architecture and engineering firms and health and social services recorded a decline. The modest overall slowdown in earnings growth is particularly impressive given that energy and commodity costs rose again mid-year and selling prices remained depressed.
Confidence for 2006 as well
Despite question marks over the global economy, interest rates and currency trends, most companies see themselves positioned well enough in their markets to be able to continue expanding. Overall, the firms surveyed anticipate nearly unchecked sales growth and even slightly better earnings in 2006. However, the individual sector picture is far more diverse, with 16 out of 27 sectors predicting falling sales and volume growth, though this will be partially compensated by a recovery in telecommunications, automobiles and retail trade. Earnings trends are much less disparate on a sector-by-sector basis, with only insurance, telecommunications, non-food and automobiles standing out thanks to their expectations of a clear recovery. There is even very little deviation with regard to assumptions about selling prices for 2006 compared to 2005, meaning little change is expected in pricing pressure.
Size is paying off
With a remarkable degree of consistency, the assessment of sales and earnings trends among the companies polled, looking both backwards and forwards, becomes increasingly positive the larger the firm involved. This picture is supported by the higher recruiting and investment needs of large companies. The only contrasting factor is the pressure on selling prices, which grows more intense the bigger the firm concerned. One major reason for this difference is the latter's stronger focus on global markets, where there is considerably stiffer competition than in domestic markets. At least the UBS survey did not confirm the theory that small and medium-sized companies, in their capacity as suppliers, bear the brunt of price concessions.
More staff are being hired
Perhaps the most unmistakeable sign that the good economy is not simply a flash in the pan is the growing requirement for labour. New recruiting has not been carried out on a grand scale, but the UBS survey shows that the vast majority of sectors polled have taken on extra staff. This trend will accelerate somewhat in 2006. The greatest need is reported in financial services, IT, real estate, electrical engineering and pharmaceuticals, while media, tourism and retail trade plan to make do with a smaller workforce. Against this backdrop, capital spending plans remain expansive.
Zurich / Basel, 27 January 2006