Corporate Press Release

Press Release

Swiss Industries 2011: Entering Calmer Waters After the Storm

Credit Suisse Publishes its Sector Handbook 2011

Most of Swiss industry should continue to recover in 2011, though at a reduced tempo. Export-driven sectors such as watchmaking with a strong exposure to the booming emerging-market economies have the brightest growth prospects. The metals, machinery and electrical engineering industries as well as chemicals and pharmaceuticals should also post above-average growth in 2011. However, the strength of the Swiss franc could prove a burden for exporters and for the hotel and catering sector in particular. According to the sector model developed by Credit Suisse, the medium-term outlook shows above-average promise, especially for high-tech sectors. In the latest Sector Handbook, the Economic Research team at Credit Suisse reports on its first study into the effect of short-time working in the various industries. They show that in the worst-hit sectors, such as the machinery and metal industries, unemployment would have been as much as seven percentage points higher if it had not been for short-time working.

The Swiss economy staged a strong comeback in 2010, emerging from the recession with surprising speed. While industry derived particular benefit on the back of reviving world trade, domestically oriented sectors profited from immigration into Switzerland and from excellent consumer sentiment. The fact that the labor market proved remarkably robust contributed to the buoyant mood. Short-time working – an employment policy instrument that is dealt with in a special section of this year's Sector Handbook – undoubtedly helped to defuse the situation.

Mixed Development of Service Sectors in 2011
The various exceptional factors that have contributed to the economic recovery to date – such as fiscal support and the statistical effects of a low baseline – are now gradually dropping out of the equation, and the fall-off in unemployment has also slowed down. Consumer sentiment, too, turned down slightly towards the end of the year. Domestically oriented sectors such as retailing or the automotive industry will continue to grow in 2011, but at a somewhat reduced pace. By contrast, the hotel and catering sector faces major challenges as the strength of the Swiss franc will impact heavily on bookings, especially from the euro zone and the UK. According to the economists at Credit Suisse, the wholesale trade and the telecoms sector will put in an above-average performance. On the other hand, the outlook for providers of financial services is highly dependent on financial market trends.

Industry Growing Thanks to Emerging Markets – but Strong Franc Set to Spoil the Party
In 2011, domestic demand is set to be outstripped by demand from abroad. Export-driven sectors will thus be among the winners. Segments that are heavily exposed to the booming emerging markets will derive particular benefits, especially the watchmaking industry – which took a battering in 2009. The Credit Suisse economists expect the metals, machinery and electrical engineering industries as well as chemicals and pharmaceuticals to also exhibit above-average growth in 2011. The strong Swiss franc could spoil the party for these sectors, however. Although the business climate abroad has a greater influence on export volumes than the exchange rate, it is quite conceivable that currency effects will become evident. If the franc remains strong or appreciates even further, the pressure on exporters' margins will increase and companies will be looking to cut costs or shift production abroad. The experts at Credit Suisse are less upbeat about the prospects for the textile and clothing, printing and publishing, and paper industries, all of which have been grappling with structural problems.

Every Fourth Metals Industry Employee on Short-time Working during the Recession
Switzerland's economy weathered the recession faster than expected. Particularly surprising was the robustness of the labor market, and the fact that unemployment showed a less pronounced rise than in earlier recessions. This can be ascribed in part to short-time working, an instrument that enabled companies – at least in the near term – to avoid more drastic headcount reductions. In their Sector Handbook the economists at Credit Suisse examine the development of short-time working in the individual sectors for the first time. In relation to total employment, short-time working was seen most frequently in the metals industry, in textiles and clothing, and in mechanical engineering. In the peak month of May 2009, for example, one in four workers in the metals sector and one in five in mechanical engineering were on short-time working.

Unemployment in Badly Affected Sectors Reduced by up to Seven Percentage Points
The calculations performed by the Credit Suisse economists show that unemployment would have been much higher in the various sectors had it not been for short-time working. In textiles and clothing, for example, unemployment could have jumped to 17% in 2009 whereas the actual rate was "only" 10%. Likewise in the machinery and metals industries, where unemployment might have been about seven percentage points higher if had not been for short-time working. At present, it is impossible to say for certain whether short-time working actually prevented dismissals for the long term. Without doubt, though, the pronounced "V" shape of the crisis with an unexpectedly sharp downturn followed by an equally powerful recovery helped to make this instrument effective. Short-time working was used to bridge work shortages and does not seem to have produced any overhang of structurally outdated jobs. The fact that Swiss companies have been better equipped for the upturn can probably also be ascribed to short-time working. Compared to a lot of their foreign competitors, they did not have to dismiss so many qualified employees with valuable expertise and then have to seek and re-employ skilled people as soon as the recovery set in – and in a labor market that had already tightened up again.

Chemicals, Pharmaceuticals, Medtech and Measuring Instruments with Best Medium-term Prospects
In the medium term, structural rather than economic factors are the key drivers of sector performance. Using an opportunity/risk model developed in-house, the Credit Suisse economists demonstrate the outlook for the various sectors over the next three to five years based on structural supply factors and long-term demand trends. As in the previous years, the resulting indicator is headed by the chemical and pharmaceutical sectors along with medical technology and measuring instruments plus the watchmaking industry (see chart). These sectors are benefiting from Switzerland's leading international position in research and can hold their own in the global competitive arena. Demographic aging and the increasing importance attached to health throughout the world mean that pharmaceuticals and medical technology – as well as healthcare, which occupies third place – will continue to enjoy brisk demand in the future. Moreover, a growing trend toward the division of labor coupled with increasingly dense networking in business and society are stimulating demand for consultancy and IT services.

Structurally Weak Sectors with Unfavorable Opportunity-Risk Profile
Sectors with structural problems on the supply side – such as printing and publishing, the textile and clothing industry, the hotel and catering sector, and agriculture – rank at the bottom of the list. These sectors will continue to face considerable challenges in the years to come, and will have to adapt to the changing environment.

Assessment of the medium-term opportunities and risks is based on an evaluation model developed by Credit Suisse that draws on 19 indicators of official Swiss statistics and on the bank's own forecasts. The sector evaluation is shown as a score on a scale of -10 to +10. A sector with a high score will exhibit more sustained economic growth than one with a low score.