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SME Export Indicator for Q1 2011: Export Sentiment Improves Significantly; Strong Swiss Franc Creates Uncertainty

Following a temporary cooling in the previous quarter, export sentiment among Swiss SMEs has improved significantly again as the first quarter of 2011 gets under way. This is the finding of the SME export outlook indicator produced by Credit Suisse and Osec. Foreign demand will remain at a high level in the first quarter of 2011, with SMEs from all sectors expecting growth in export volumes. There are concerns about the strength of the Swiss franc.

The Credit Suisse export barometer, which records foreign demand for Swiss products, rose again slightly versus the fourth quarter of 2010 and currently stands at a level of 0.6. This is above the growth threshold of -1, and also above the zero level that signals a normalization. However, the figure remains below the peak seen in the third quarter of 2010. As the barometer is well into the growth zone, foreign demand for Swiss products is likely to remain in positive territory in the months ahead.

Thanks to sustained, strong foreign demand, export sentiment among Swiss businesses has turned positive again for the first quarter of 2011 following the temporary cooling seen in the previous quarter. This is shown by Osec's SME export outlook indicator. Based on the export sentiment of SMEs for the first quarter of 2011, combined with exports in the preceding quarter, it shows a figure of 70.6 points versus 47.0 points at the start of the fourth quarter of 2010. Values of above 50 on this scale of 0 to 100 signal growth in exports.

All Sectors Expect Growth in Exports
According to Osec's SME export outlook indicator, the positive export sentiment for the first quarter of 2011 prevails in all sectors. The main drivers of exports are likely to be the service, chemicals/pharmaceuticals and consumer goods sectors. Companies in the electrical engineering, machinery and metals industries also expect significant growth. Prospects for growth are lowest for the paper and precision instruments industries. The turnaround in sentiment is especially marked in the case of the service sector, which at the start of the fourth quarter of 2010 had still been expecting exports to fall by around 6%.

The Credit Suisse export barometer also shows sustained, solid foreign demand for all key Swiss export industries. Demand is comparatively strong in the metals industry. Here the disproportionately high share of key European countries – led by Germany – is providing stimulus. The electrical engineering sector also has favorable international sales prospects, while the outlook for machinery is roughly in line with overall Swiss exports.

Slight Decline in Exports to Europe
There will only be a small shift in the destinations for Swiss exports: Europe will lose some of its significance due to the weakness of the euro, while the Asia-Pacific region's share is also declining and North America remains stable. According to Osec's SME export outlook indicator, 77% of Swiss SMEs will export to Europe over the coming six months (first and second quarters of 2011). This compares with 85% in the previous six months. The most important European export market remains Germany, to which 67% of the SMEs surveyed export their goods or services, followed by Austria (43%), France (42%), and Italy (38%). 46% of Swiss SMEs will export to the Asia-Pacific region in the next six months (51% in the previous period), the most important markets being China (27%), India (19%), and Australia (17%). 36% of SMEs are likely to export to North America in the coming six months, 25% to the Middle East/Africa region, and 14% to South America.

The Credit Suisse export barometer shows how Germany – the biggest destination country - has once again gained momentum. That this favorable situation is not reflected in Swiss exporters' expectations reflects uncertainties about the future course of exchange rates. Besides Germany, France and China also show a rise in demand. In the US too, momentum has remained positive but lukewarm. By contrast, demand elsewhere has lost momentum – such as in Italy and Spain – or is actually declining, as in Japan.

Noticeable Impact of Exchange Rates
58% of the Swiss SMEs surveyed by Osec expect to export less as a result of the strong Swiss franc. The precision instruments (75%), chemicals/pharmaceuticals (72%) and machinery (70%) industries are negatively affected by this exchange-rate development. The service sector is relatively immune (36%). 41% of SMEs, however, report that the strong Swiss franc has no bearing on their exports.

Further information on the SME export indicator for the first quarter of 2011 is available via the following link: www.osec.ch/exportindikator

Methodology of the Credit Suisse Export Barometer
The Credit Suisse export barometer takes as its basis the dependence of Swiss exports on foreign export markets. In constructing the export barometer, we have drawn together important leading industry indicators in Switzerland's 28 most important export countries. These indicators generally have a forecast horizon of approximately one to two quarters. The values of these leading indicators are weighted on the basis of the share of exports that goes to each country and are consolidated to form a single indicator. Since the values in question are standardized, the export barometer is calibrated in standard deviations. The zero line corresponds to the long-term average growth in Swiss exports of 4.8% since 1985. Accordingly, the growth threshold lies below the zero line at around -1. For more detailed information: Credit Suisse (2009), Swiss Foreign Trade – Facts and Trends, Swiss Issues Sectors, available at www.credit-suisse.com/research

Methodology of Osec SME Export Outlook Indicator
The SME export outlook indicator is based on the quarterly survey of a fixed panel of more than 200 Swiss SMEs representing the pharmaceuticals/chemicals industry, machinery, consumer goods, the metals industry, paper, electrical engineering, the precision instruments industry, as well as services. SMEs indicate whether they expect growth, stagnation or a decline in exports for the current quarter as well as the coming one. The SME export indicator can range from 0 to 100, whereby figures between 0 and 50 show an expected decline in exports and figures of 50 to 100 an expected rise in exports. Participants provide further information on export volumes, for instance the reasons for a change in their export volume, export markets, etc. This information gives an accurate picture of the export activities of Swiss SMEs.