digitalization-and-demographic-change-hold-opportunities-and-risks
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Digitalization and Demographic Change Are Driving Growth 

Digitalization is proceeding apace, as is demographic change. These trends will affect the business performance of numerous sectors in the coming years. The most likely beneficiaries will be the information technology (IT) and healthcare sectors.

Which sectors will support the growth of the Swiss economy in the future? What is known as the opportunity-risk profile gives us an idea. This model draws both on sector statistics and assessments by analysts on the influence of social, technological, and political trends. This allows a view to be expressed about the medium-term growth potential of the most important branches of the economy while taking existing and possible risks into account.

The greatest opportunities, but also risks, are at present to be found in the IT sector, and in the health-related sectors. By contrast, retailing and the metals industry are likely to remain under pressure.

it-sector-benefits-from-digitalization

IT Sector with the Best Medium-Term Prospects

Medium-term opportunity-risk profile: synthetic indicator, overall economy=0
Source: Swiss Federal Statistical Office, Credit Suisse

Digitalization Represents an Opportunity and a Risk Simultaneously

One of the most important trends is increasing digitalization. Almost all sectors are affected by this, and there are both winners and losers.

The biggest beneficiaries of digitalization include, first and foremost, the IT sector itself: The increasing accumulation of large amounts of data ("big data"), the growing use of cloud solutions, and other manifestations of digitalization are driving demand for server and date centers, and for the associated advisory services (data analytics, cyber security etc.) And this is also one of the main reasons why the IT sector is believed to have far greater than average growth potential as regards opportunities and risks.

Health-Related Sectors Benefit from Demographic Change

Demographic change and especially the increasingly aging population also represent a major influencing factor across sectors. Above all, it is the healthcare and nursing home sector that is affected by this, which is expected to see steady growth in demand in the future, among other things owing to the increasing numbers of people needing care.

The opportunity-risk profile is also above average for the pharmaceuticals industry and medical technology owing to the anticipated demographic developments.

retailing-and-metals-industry-are-under-pressure

Retailing and Metals Industry under Pressure 

Medium-term opportunity-risk profile: synthetic indicator, overall economy=0
Source: Swiss Federal Statistical Office, Credit Suisse 

Current Economic Situation of Swiss Sectors

The following "Industry Monitor" gives you a brief overview of the current business performance and the economic outlook for the coming months in six selected, major sectors of the Swiss economy.

Chemical and Pharmaceutical Industry

After chemical and pharmaceutical exports rose in the first quarter of 2017 compared with 2016, mainly owing to a baseline effect (chemicals: +6.6%; pharmaceuticals: +14.9%), growth rates fell markedly in the second quarter (chemicals: –1.3%; pharmaceuticals: +0.7%).

Although most of the sector continues to assess the business situation as satisfactory to good according to a survey by the Swiss Institute for Business Cycle Research (KOF), the sector is likely to benefit less from the upswing than other branches of industry in the coming months too, owing to the more acyclic demand for pharmaceutical products.

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Exports Stagnated in 2nd Quarter 2017 

Exports: trend, index July 2014 = 100; YoY change in %
Source: Swiss Federal Customs Administration, Credit Suisse 

Engineering, Electrical, and Metal Industry (MEM)

The recovery of the MEM industry continues, supported by sound global economic conditions. Export-oriented mechanical engineering saw the clearest uptrend. In the first seven months of 2017, Swiss exports of machinery increased by 3.4% year-on-year, with the three biggest markets, Germany, the US, and China, all contributing positively to this growth.

Mechanical engineering firms have not been as positive about their business situation as at they are present since 2011. Suppliers from the metals industry are also likely to benefit increasingly from the improved business performance in mechanical engineering.

demand-rising-in-mechanical-engineering

Demand Rising Especially in Mechanical Engineering 

Share of the Companies Surveyed Complaining of Insufficient Demand
Source: Swiss Institute for Business Cycle Research (KOF), Credit Suisse 

Watch Industry

The worst is over in the watch industry but there is still no sign of a broadly based recovery. In the first seven months of 2017, watch exports were 0.7% higher year-on-year. Exports to China and the UK in particular saw strong growth.

By contrast, other important markets such as the US, Japan, Germany, France, and the United Arab Emirates were still sharply down. Accordingly, sentiment in the sector – measured by the KOF business situation indicator – was mostly depressed. For the coming months, expectations of the watch manufacturers surveyed are cautiously optimistic.

watch-industry-is-cautiously-optimistic

The Worst Is Over, but Sentiment Still Subdued 

Share of companies surveyed, balances in percentage points
Source: Swiss Institute for Business Cycle Research (KOF), Credit Suisse 

Retailing

For the first time for almost two years, turnover in the retailing sector has risen again (2nd quarter of 2017: +0.7% compared with 2nd quarter of 2016). The growth was largely recorded in June. It can therefore be mainly attributed to the favorable weather, which gave a boost to the clothing, do-it-yourself, and leisure segments among others, for a while.

Owing to this special effect, the current growth momentum in the non-food area is unlikely to be a yardstick for performance during the remainder of the year. Food retailers were able to increase their turnover slightly in the second quarter despite continuing price pressure.

retailing-able-to-increase-turnover

Hot June Ends Two-Year Downturn 

Retail prices and nominal turnover, change YoY in %
Source: GfK, Credit Suisse 

Tourism

In the first half of 2017, the Swiss hotel industry saw strong growth in overnight stays of 2.9% year-on-year. Two-thirds of this growth can be attributed to guests from Switzerland, India, the US, and China.

The traditional alpine tourism destinations benefited more from this growth than the cities. In addition, the end of falling prices is likely to give the hotel industry some breathing space. Overall, and for the first time for years, most of the companies surveyed by the Swiss Institute for Business Cycle Research are assessing their business situation as positive again.

hotel-industry-able-to-stop-fall-in-prices

Falling Prices End in the Hotel Industry 

Overnight stays and prices in the Swiss hotel industry, 12-month average, index 2010 = 100
Source: Swiss Federal Statistical Office, Credit Suisse 

Information Technology (IT)

Indicators continue to point towards growth in the IT sector. However, compared with the previous quarters, the companies surveyed by the industry association Swico have recently scaled down their expectations slightly. Although all segments anticipate an increase in turnover in the current quarter, everyone, except for the software area, is expecting to see falling prices and consequently lower profitability.

The problem most often mentioned by IT firms is still the recruitment and retention of specialist staff. Some IT companies also regard digitalization and the shift towards cloud computing as a challenge.

despite-digitalization-optimism-in-the-it-sector-falls-slightly

Optimism in the IT Sector Falls Off Slightly 

Sentiment index: > 100 = improvement, < 100 = decline YoY
Source: Swico, Credit Suisse