Deliver Your News to the World

Structural strains to growth cast a shadow to industrial sectors chilling recent economic heat


Annual Outlook in Credit Suisse’s 2008 Sector Handbook

Fully booked hotels, capacity bottlenecks in industry and record retail sales have pushed the debate about Switzerland’s low growth figures and the structural problems of some of its industries into the background. Following the lengthy and broad-based boom, 2008 will see the economy slow down somewhat. At an advanced stage of the economic cycle such as the present one, developments tend to vary more sharply from one sector to another than during a boom. In its 2008 Sector Handbook, the Economic Research unit at Credit Suisse presents the 2008 outlook for the key sectors of the Swiss economy. It also examines the medium-term opportunities and risks for the individual sectors and their structural strengths and weaknesses. To do so, the Credit Suisse experts use their own evaluation model, which to a large extent conceals the economic influences.

The Swiss economic upswing continued in 2007, driven primarily by steady private consumption but with further dynamic inputs from investment in plant and equipment and from foreign trade. With order books full and unemployment low, 2008 has started on a bright note. However, the pace of growth looks set to slow down. At such an advanced stage of the economic cycle, nervousness tends to increase. Experience has shown that while booms benefit most sectors - even those with structural weaknesses - they tend to obscure unresolved or recurring structural problems. The Credit Suisse economists’ assessment of medium-term opportunity/risk profiles measures the structural strengths and weaknesses of the various sectors while largely factoring out cyclical influences.

Top Sectors Target High Tech and Luxury
The chemical/pharmaceutical sector and the precision instruments industry (including the watchmaking sector) are the undisputed winners in the opportunity/risk charts. The performance of these leading industries is truly broad-based and not just a flash in the pan. The healthcare and social sectors, as well as corporate services, have narrowed the gap with the leaders. Benefiting from demographic developments and rising expectations of medicine, demand for healthcare and social services is additionally being driven by the financing arrangements in Switzerland, which are hardly conducive to cost-cutting. In corporate services, the trend toward outsourcing complex tasks to specialists is a major source of potential growth for the future. By contrast, the potential of the communications sector has waned. Formerly the flagship of the “New Economy,” this industry has been showing signs of saturation.

Investment Goods Industry Only an Average Performer Despite Renewed Drive
The assessments for most Swiss industries are in the middle range. An example is the investment goods industry, a cyclical sector that has been enjoying a good tailwind in the last few years. “Mechanical engineering has undergone a real revival,” says Martin Neff, designated head of Economic Research at Credit Suisse Switzerland. But the global investment boom isn’t the only reason why Swiss machine-builders are in such fine fettle. They have undergone a complete makeover during the last ten years. Most companies have stopped trying to compete on price and are now playing the innovation card. They have boosted the potential added value by rigorously outsourcing their cost-sensitive units, thereby strengthening their competitiveness for the medium term. But although the mechanical engineering industry will certainly enjoy boom years in the future, too, its medium-term opportunity/risk profile remains average. Global competition is too fierce, and the eastward shift of manufacturing too pronounced.

Domestic-Focused Sectors Feeling Saturated
The Swiss food industry faces a market that is now largely saturated. Impressive export figures do not accurately reflect the situation of the industry as a whole. Only the suppliers of convenience and “functional” (healthcare-oriented) foods have benefited from the upswing. Exports have been thriving in niche markets, notably that for mineral water. But for most producers, competition from imports has become even stiffer. Daily staples in particular have come under heavy price pressure. The pace of growth in the building industry has continued to slow. A number of factors - low entry barriers, a plethora of mostly small suppliers, and rising costs - are keeping up the pressure on margins. As the construction boom flags, this pressure will increase further.

Good Figures Conceal the Risks
The opportunity/risk profiles of the hospitality industry (hotels and catering) and of retailing are well below the average even though the buoyant economy has allowed them to post impressive growth figures to date. In the last three years, hotels and caterers have won back the custom they had lost after 2001. However, the next economic downturn could hit the sector hard. While it is making greater efforts to improve quality, this industry continues to face severe structural problems. It is saddled with large capacity surpluses, and the infrastructure in many places is outdated. Many players have not generated enough resources during the boom years to finance all the much-needed investment in replacements and upgrades. Over the next few years, the retail trade will find itself under constant pressure to adapt in the face of growing international competition, the rising significance of information technologies, and changing customer needs.

Structural Change Continues During Booms Too
In some sectors, the risks are very apparent even when the economy is booming. According to the model applied by the Credit Suisse economists, agriculture is still the sector with the worst opportunity/risk profile. For some years now, the textile and clothing industries as well as printing and publishing have been undergoing massive structural change. Despite radical restructuring, they have again derived little benefit from the economic boom: even though sales have risen at some companies, headcounts have continued to fall.

* Elke Frost, Credit Suisse Economic Research, Tel. +41 44 333 37 45,
* Martin Neff, Credit Suisse Economic Research, Tel. +41 44 333 24 84,
* Credit Suisse Media Relations, Tel. +41 844 33 88 44,

Credit Suisse
As one of the world’s leading banks, Credit Suisse provides its clients with investment banking, private banking and asset management services worldwide. It provides companies, institutional clients and high net worth private clients worldwide, as well as retail clients in Switzerland, with specialist advisory services, comprehensive solutions, and innovative products. Credit Suisse operates in over 50 countries and employs approximately 47,000 people. Credit Suisse Group, the parent company of Credit Suisse, is a leading global financial services company headquartered in Zurich. Credit Suisse Group registered shares (CSGN) are listed in Switzerland and, in the form of American Depositary Shares (CS), in New York. Further information about Credit Suisse can be found at

This document has been produced by Credit Suisse. The opinions stated herein are those of Credit Suisse at the date of writing and may change at any time. This document has been prepared solely for information purposes and for the use of the recipient. It constitutes neither an offer nor a request by or on behalf of Credit Suisse to purchase or sell securities. Any reference to past performance is not necessarily a guide to the future. The information and analyses contained in this publication have been compiled or derived from sources considered to be reliable, but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use of this information.


This news content was configured by WebWire editorial staff. Linking is permitted.

News Release Distribution and Press Release Distribution Services Provided by WebWire.