Modest recovery with some risks in Switzerland

In 2010 Crédito y Caución expects a modest recovery, based on domestic consumption and a rebound of exports. A persistent recovery is not expected until 2011 at the earliest.
Analisis Credito y Caución
Madrid - 29-mar-2010

Switzerland has been less affected by the global crisis than other industrialised countries, as some important Swiss export sectors, such as pharmaceuticals, are less dependent on economic volatility, and also because the domestic economy has not been directly affected by a sharp deterioration of house/real estate prices. Forecasts have been revised upwards in the last couple of months: GDP will contract 1.6% in 2009 from an estimate in June 2009 of -2.7%. That said, unemployment remains high, at 4.4%.

After two stimulus packages were launched in November 2008 and February 2009, mainly to sustain construction and improve infrastructure, a third was introduced at the end of 2009, aimed at reviving the labour market.

Many companies damaged by falling orders since the end of 2008/beginning of 2009 subsequently exhausted their financial resources and were forced to file for insolvency last year. Altogether in 2009, 5,100 companies went insolvent, a 26.7% increase on 2008. December saw an all-time high of 558 insolvencies. While in the first half of 2009 it was mainly export-dependent companies and the financial sector that were affected, the picture changed in the second half, as a growing number of businesses in retail, the handicraft industry, and in the catering and hotel sector went insolvent.

After a sharp deterioration at the beginning of 2009, payment behaviour improved in the second half of the year, but Crédito y Caución still recorded a high rate of payment delays in the automotive and textile sectors.

In general, neither Swiss companies nor banks expect a severe worsening of lending conditions - or a credit crunch - in the future. However, some industries, such as machinery, automotive supplies and construction, could face a liquidity freeze. Crédito y Caución expects loan conditions to tighten after companies have disclosed their 2009 annual accounts, simply because, in many cases, this will lead to a downgrading of borrowers ratings. The consequence will be higher costs for borrowers, shorter credit periods, shortened lines of credit and more collateral required by lenders.

In 2010 Crédito y Caución expects a modest recovery, based on domestic consumption and a rebound of exports, as growth has picked up again in Switzerlands main export markets - Germany, France and the US. Nevertheless, the pace of recovery could slow down in the course of the year as the stimulus packages in Switzerland and in other countries expire. Many companies currently face empty order books or a pessimistic outlook for new orders. This will subdue comprehensive investments for the time being, as companies restrict themselves to necessary replacement investment. Crédito y Caución expect insolvencies to level off or even decrease slightly compared to 2009. A real and persistent recovery is not expected until 2011 at the earliest.

Insolvency of metals producers rose by 15% in 2009

The metal and machines sector is the most important manufacturing industry in Switzerland, and highly dependent on demand from the machines, automotive and construction industries at home and abroad. Last year, some metal producers´ turnover decreased by up to 50%, with export dependent subsectors, such as steel producers, being hit earlier and harder than domestic-oriented foundries or producers of metal goods, which could still rely on orders, for instance from the Swiss construction sector, for the time being. However, even those sectors didnt entirely escape the effects of the downturn in 2009.

Insolvency of metals and machinery producers rose by more than 15% in 2009. Payment morale is still bad, with invoices often settled late. Buyers are increasingly seeking trade credit from their suppliers to safeguard short-term liquidity. Therefore, a comprehensive and regular check of customers´ creditworthiness is of prime importance. With current overcapacity, expiring stimulus packages and a reluctant investment sentiment in other industries, there will be no fast recovery, and the level of incoming orders will remain low in the short-term.

The Chemicals/pharmaceuticals sector did not avoid the economic crisis

Pharmaceuticals are less affected than chemicals by economic fluctuations, as demand for health products is relatively stable, because of increasing health expenses worldwide and higher life expectancies. In contrast, the chemical industry, as a major supplier to other sectors, is generally much more dependent on overall industrial production. As a consequence, the Swiss chemical sector has been severely hit by the deteriorated global demand.  

While the number of insolvent companies in this sector increased sharply in 2009, the overall payment behaviour is still one of the best, when compared to other Swiss sectors. Crédito y Caución short term outlook for the Swiss pharmaceutical sector is relatively good, despite tough global competition and pressure on prices. Switzerland is an international leader in research and development in this industry. In fact, with high labour productivity and a broad diversification of exports, the Swiss pharmaceutical sector has renewed growth potential in the coming months. By contrast, growth potential in the chemical sector is lower, as in general this industry is less technology-driven than pharmaceuticals and more prone to price pressure.

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