UBS outlook 1st quarter 2008
Swiss business sectors in very good shape2007 was another very good year for nearly all sectors of the Swiss economy. Sales and earnings were both up. While the outlook for 2008 is more restrained, it remains positive. Sales are expected to be strongest in the watchmaking, pharmaceuticals and IT sectors. These are the results of a broad-based survey carried out by UBS of around 4,100 companies in 27 main sectors and 95 sub-sectors.
Nearly every sector participated in the strong growth of the Swiss economy in 2007. According to the most recent comprehensive UBS business survey, last year was one of the best years of the last few decades on all counts: revenue and sales growth, earnings, selling prices, headcount and investment. Sales increased in all sectors. The growth engines in 2007 were the watchmaking, pharmaceuticals and capital goods industries.
Watches, machinery and pharmaceuticals experience strongest sales growth
The majority of companies surveyed in all sectors registered higher sales volumes in 2007. The strongest sales growth was reported in the watches, machinery, banking and pharmaceuticals sectors. Electrical engineering, metals, IT services, corporate services, wholesale and tourism also made gains. Telecommunications, utilities and waste disposal and health and social services were the weakest performers but still reported positive trends.
Solid earnings growth
With sales booming, earnings growth was firmer in 2007. Exports were bolstered by the favourable euro/franc exchange rate. The fact that banks reported the best earnings despite major writedowns is due in part to the structure of the census, which only looks at business criteria at Swiss locations. Most banks were not directly affected by the consequences of the global credit market crisis. There were also sharp increases in earnings in watches, machinery and pharmaceuticals. Food manufacturers only reported a slight increase in earnings.
Slight rise in prices
Booming world markets and the strong franc enabled producers to pass on at least part of the rise in commodity prices to customers in 2007. Export-oriented sectors such as watches, materials, metals and machinery reported big increases in sales prices. The biggest, however, came in tourism. In chemicals, architecture, IT services and food, on the other hand, prices stagnated. In retail, the presence of foreign competitors and the struggle among major retailers for market share led to an overall fall in sale prices. Media and telecommunications also suffered price erosion.
HR departments kept busy
The Swiss labour market was extremely attractive for jobseekers in 2007. Companies recruited staff on a grand scale. Hiring exceeded the forecasts made in the previous year's survey in every sector surveyed, with the largest rises registered by the banks, machinery and electrical engineering sectors. No sector reported a fall in headcount. Large firms recruited more actively or successfully than SMEs. The fact that so many new jobs have been filled is due in part to the freedom of movement between Switzerland and the EU. At the same time, more and more companies are having difficulty finding suitably qualified workers.
Regionally balanced growth
Despite differences in their sector make-up, the various regions of Switzerland posted similar trends in terms of their companies' sales and earnings. Zurich and Northwestern Switzerland came off best in 2007, but levels of contentment with results were also above average among respondents in Central Switzerland - the region with the highest sales and profit expectations for 2008. Business performance in Southern Switzerland was below the national average.
Confidence for 2006 as well
The results of the UBS survey show that the picture for this year remains positive, despite signs of some slight slowing in growth. Companies of all sizes and from all regions forecast higher sales and earnings overall, and the generally positive view is clouded only a little by fears of a slight weakening in certain sectors. Watches, capital goods and pharmaceuticals remain the most confident sectors while construction is the most pessimistic.
Daniel Kalt, Head of Economic & Swiss Research
Tel. +41 44 234 25 60
Carla Duss, Swiss Economic Research
Tel. +41 44 234 21 19
UBS publications and forecasts for Switzerland: www.ubs.com/economicresearch