Swiss Industries 2010: Which Sectors Have Weathered the Crisis and Who Will Be Hit Next?

However, export-oriented suppliers to industry, such as manufacturers of plastics and basic chemicals, are already starting to show signs of a recovery. The Swiss economy as a whole is expected to grow by 0.6% in 2010. In the Sector Handbook, Credit Suisse's economists look at the consequences of the crisis. Bankruptcies and unemployment will continue to rise in 2010, serving as a continual reminder of the recession even if this has long since been declared officially over. In addition, Credit Suisse's specialists use a model developed in-house to assess the medium-term prospects for each sector. This shows that export- and technology-driven sectors should see particularly dynamic growth in the next few years.

2009 was the most turbulent business year since the 1973 oil crisis. There was virtually no sector that emerged unscathed from the recession. In the wake of the financial and economic crisis, orders slumped across the board, sales fell drastically, and companies' liquidity reserves and unfilled orders dried up. Most sectors had to downsize their workforce, or even saw bankruptcies. A special section of this year's Sector Handbook examines the varying impact of bankruptcies and unemployment on the different sectors. Although the economic cycle has bottomed out, the pace and scale of the revival in 2010 will vary from one sector of the Swiss economy to another. These differences are accentuated by the sectors' structural strengths and weaknesses.

Impetus from Emerging Markets to Benefit Export Sectors in 2010

Just as the recession was primarily imported, the upswing is also likely to be driven by factors outside Switzerland. Credit Suisse's economists are expecting exports to grow by 5% in 2010. This growth is most likely to be driven by the emerging countries – like China, India and Brazil – which were far less affected by the financial and economic crisis. A recovery among the traditional foreign-trade partners is much less certain. Overall, it is the export-oriented supplier industries in particular that will benefit from the recovery. These include the manufacturers of basic chemicals, metals, plastics, and paper products. Turning to the tertiary sector, the IT and corporate services segments should be the first to start recovering. The outlook for providers of financial services is positive in light of the solid earnings potential in the emerging markets, though the ongoing discussions about financial market regulation are a source of uncertainty.

Domestically Oriented Sectors Not Benefiting from Recovery

Although private consumption in Switzerland should grow again in the current year, the continuing rise in unemployment will slow down the growth rate considerably compared to 2009. This should trigger a slight drop in retail sales in 2010. Consumer goods producers with a domestic focus, as well as the hotel and catering and the automotive sectors, will also have to contend with gloomy consumer sentiment. Growth in government spending will be less pronounced than in 2009. Signs of weakness in structural engineering and a slowdown in civil engineering mean that the construction industry is also suffering from surplus capacity in some areas.

Bankruptcies up by a Quarter in 2009 – Trend Set to Continue in 2010

The recession pushed bankruptcies up to record highs in 2009. Well over 5,000 companies became insolvent last year, exceeding the previous record figure from 2004. At the sector level, however, the different sectors were affected by bankruptcies to a greatly varying extent. Industrial companies, business consultants and the wholesale trade saw a particularly steep rise in bankruptcies. Above-average rises were also experienced by holding and investment companies, which are classed as financial service providers: The number of bankruptcies in these segments almost trebled within two years. Domestically oriented sectors such as construction and catering had already seen a rising number of bankruptcies during the boom period for structural reasons, so the direct impact of the crisis has been weaker. A high rate of bankruptcies, however, does not necessarily point to a structural crisis in a particular sector but – if a large number of new companies are being founded at the same time – may reflect a highly dynamic and not necessarily a negative situation. Credit Suisse's economists expect bankruptcies to continue rising in 2010, albeit at a slower pace than in 2009.

Mechanical Engineering Industry Headed for Higher Unemployment in 2010

To obtain more accurate unemployment rates, Credit Suisse's economists supplemented the official statistics with their own estimates of the labor force. They found that the watchmaking industry – with an unemployment rate of over 10% – has been especially hard hit by the recession. The metal and mechanical engineering industry, which was badly battered by the drop in exports, has also seen a sharp rise. By contrast, unemployment in the healthcare sector was a moderate 2%. In 2010, the end of short-time working at many companies will mean more job losses. As a result, the unemployment rate will rise again in 2010, averaging over 5% for the year. The mechanical engineering industry will be hit harder than average again.

Export- and Technology-driven Sectors the Front Runners in Medium Term

Using an opportunity-risk model developed internally, Credit Suisse's economists examined the outlook for the various sectors over the next three to five years. Their model is based on structural supply factors and long-term demand trends that in the most part develop independently of the business cycle. The resulting medium-term assessment puts the sectors in descending order according to their opportunity-risk profile (see chart). At the top of the table are the chemical and pharmaceutical sectors, medical technology and measuring instruments, and the watchmaking industry. Thanks to their technological lead, these sectors are especially competitive in the international markets. This leading group is followed by healthcare, and corporate and financial services. The former is benefiting from a steady increase in demand, due among other things to the aging population. The latter are benefiting from the growing trend toward division of labor in the manufacturing and service sectors. Despite the financial crisis and the continuing debate about banking confidentiality, the Swiss financial center is still well placed internationally and in terms of future potential.

Structurally Weak Sectors at the Bottom of the Table

The other end of the scale is dominated by sectors with structural problems on the supply side. They include the paper industry, printing and publishing, textiles and apparel, hotels and catering, and agriculture. These sectors will continue to underperform other sectors and will face continual restructuring pressure.

Assessment of the medium-term opportunities and risks is based on an evaluation model developed by Credit Suisse that draws on 24 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.

--- END press release Swiss Industries 2010: Which Sectors Have Weathered the Crisis and Who Will Be Hit Next? ---

  UBS Switzerland (vormals Credit Suisse) (company entry)