Medium-sized businesses detect signs of an end to the downswing
Ernst & Young Survey: "Medium-sized business barometer June 2009": Further deterioration in business performance / Positive business expectations prevail again / Criticism of the government's stimulus packages / Negative fallout feared for Swiss firms amid international tax debates.
ZURICH, June 8, 2009 - For medium-sized businesses in Switzerland it seems the low point of the crisis has already passed. Despite a further deterioration in the overall business performance, expectations for the coming six months have become considerably more optimistic. The government’s stimulus packages do not offer sufficient support, heads of medium-sized businesses feel, and they expect that international tax debates will have consequences for Swiss companies. These are the findings of the "Medium-sized business barometer June 2009" conducted by professional services company Ernst & Young Switzerland. The study is based on the responses of 700 medium-sized businesses in Switzerland to a survey carried out in May 2009.
Since the previous survey of February 2009, the business situation of medium-sized firms in Switzerland has taken another sharp turn for the worse: only 77% of medium-sized firms rate their position as positive - in February this figure was still at 87%. Retail, industry and services have been worst hit by the slump. But despite this, the majority of companies are still doing well. Business sentiment is best among respondent companies in the Lake Geneva and Mittelland regions (83% and 82%). The area worst affected by the crisis is Northwestern Switzerland, where optimism waned from 96% to 75%.
Positive business expectations for 2009
While the assessment of current business performance has deteriorated markedly, there has been a marked upturn in business expectations. Twenty-seven percent of respondents gave a generally favorable outlook for the coming six months and only 16% viewed their prospects as less than favorable, which is a clear improvement on February’s result.
Companies located in Ticino, Central Switzerland and the region around Lake Geneva are the most optimistic, where a respective 33% and 28% expect an upturn in business. Similarly, the Swiss economy as a whole is showing early signs of a change in sentiment: at the moment, only 38% of respondents anticipate that the economic decline will continue (down from 70% in February). A respectable 23% anticipate an improvement in the economic situation over the next six months (vs. 6% in February).
“The latest results give us cause to hope that the trend will be reversed. The more upbeat business expectations and the significantly more optimistic economic expectations are confirmation that the pace of economic decline is slowing,” comments Pierre-Alain Cardinaux, Partner at Ernst & Young Switzerland and Head of the Suisse Romande Market. “The upcoming months will show whether the recession is leveling off and giving way to a period of stagnation or whether growing order books will prompt a recovery.”
“It is still too soon to herald a trend reversal. For that to happen, the upturn in the business expectations would have to continue in the coming months," says Viktor Bucher, Partner at Ernst & Young Switzerland and Head of the German-speaking Switzerland Market. “Many companies are currently undergoing a period of fundamental restructuring, which many will not survive. Eight percent of companies surveyed describe their current situation as critical, while 11% actually expect to be in acute danger within the next six months if the crisis persists unabated."
Ineffective stimulus packages
Seventy-three percent of medium-sized businesses are convinced that the economic recovery measures introduced by the government will have no effect on their own company’s business development. As a result, they are trying to counter the downswing through changes to their personnel policy, such as hiring freezes, reduced work hours and job cuts, along with strict cost control measures.
This is demonstrated by the continued decline in companies' willingness to invest, and by the unchanged forecast of a fall in employment levels. For example, one in five medium-sized businesses surveyed would like to reduce its staff numbers over the next six months, and only one in ten intends to recruit more employees.
Among the additional support they would like to see from the government, medium-sized firms cited lending and easier access to finance (22%), less red tape (19%), development programs (18%) and tax relief (16%). Only two percent of companies involved in the survey advocate state investment in various sectors.
Tax debates are having repercussions
In the opinion of 54% of the medium-sized businesses, the tax debates of recent months have taken a heavy toll on Switzerland's image abroad. A total of 47% of firms currently expect that international sanctions will be imposed if the required OECD guidelines are not implemented. Among the potential fallout from the tax row, four out of five companies expect to see greater activity on the part of international tax authorities, while 62% anticipate problems for the free movement of capital and 59% even fear considerable hindrances to doing business with foreign companies.
Interestingly, 6% of medium-sized businesses are already experiencing adverse developments in their international business transactions, which could be a repercussion of the tax debates. According to these respondents, such adverse developments include increasing reluctance to make direct investments (35%), heightened information requirements (35%) and a decline in export orders (30%).
In terms of government policy, medium-sized businesses recommend closer cooperation with other countries (68%), open exchange of information particularly on tax issues (57%), and other priorities unrelated to taxation (50%). By contrast, only 21% and 19% of respondents believe that abolishing banking secrecy or joining the EU will ensure Switzerland's continued success as a business center.
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About the study
This study is based on a survey conducted of the general managers or owners of 700 medium-sized businesses in Switzerland. The telephone interviews were conducted in May 2009 on behalf of Ernst & Young AG by the independent market research institute Valid Research (Bielefeld, Germany), who based their survey on the following sector breakdown at regional and national level: 40% services, 26% retail, 14% construction and energy, 20% industry and manufacturing. The respondents' workforces ranged from 30 to 2,000. Listed companies were not included in the survey.
The regions defined in our survey are the seven major regional areas officially employed by Swiss Statistics, which can be used in comparisons of regions within Switzerland and with their counterparts in Europe. The seven major regions have been mandatory for Swiss Statistics since 1997. They comprise the region around Lake Geneva with the cantons of Geneva, Vaud and Valais; the Mittelland region with the cantons of Berne, Fribourg, Jura, Neuchâtel and Solothurn; Northwestern Switzerland with the cantons of Aargau, Basel-Landschaft and Basel-Stadt; the region of Zurich with the canton of Zurich; Eastern Switzerland with the cantons of Appenzell Ausserrhoden, Appenzell Innerrhoden, Glarus, Grisons, St Gallen, Schaffhausen and Thurgau; Central Switzerland with the cantons of Lucerne, Nidwalden, Obwalden, Schwyz, Uri and Zug; and the region of Ticino with the canton of Ticino.
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