Companies have great confidence in the Swiss economy in spite of crisis
Ernst & Young trust index Companies anticipate only slow improvement of the economic situation / Swiss franc and Swiss economic system enjoy highest confidence levels / Concerns over further energy price increases, high inflation and national debt
ZURICH, AUGUST 3, 2009 – In spite of the current economic crisis, Swiss companies continue to have relatively high levels of confidence in the major pillars of the Swiss economy. The Swiss franc and the Swiss economic system in particular are held in high esteem. Confidence in the financial industry is surprisingly high, despite the ongoing debates and instability in the financial markets. At the same time, companies in Switzerland are forecasting a slow but steady recovery of the economic situation over the next two years. At present, construction and energy companies report the most positive views on the situation. Service and industrial enterprises are enjoying a sustained upswing. These are the findings of the first edition of the
Ernst & Young trust index, a survey conducted by Ernst & Young of 300 companies in Switzerland. In future, the trust index will be carried out once every three months in order to track the development of confidence in the Swiss economy.
Swiss franc and Swiss economic system regarded particularly highly
Respondents have the most trust in the stability of the Swiss franc: 95% gave the Swiss currency the seal of approval, with only 5% expressing little or no confidence. Gaining the trust of 89% of survey participants, the euro was also considered reliable. In this light, the Swiss franc and the euro enjoy considerably higher recognition than the US dollar, with the latter being considered trustworthy by just 52% of the respondents, versus 48% rating it negatively.
The Swiss economic system was also rated very positively. Around 90% of the companies interviewed have confidence in Switzerland's economy even in times of difficulty.
In spite of the economic crisis, confidence in the financial industry, that is the economic sector which has been worst hit by the crisis, is very high. 55% of survey respondents have moderate, relatively high or very high confidence in the banking sector, compared with the 45% of those asked who have little or no trust in it. Insurance companies fare even better, gaining the vote of confidence from 72% of respondents. “The near collapse of the global financial system in fall 2008 markedly shattered confidence in the financial sector. However, as can be seen from the findings of the survey, the financial industry meanwhile seems to have recovered from this loss of confidence to some extent,” remarks Bruno Chiomento, Chief Executive Officer of Ernst & Young Switzerland. “If in future the industry ensures that it introduces a system of sensible and sustainable risk management in its business, it has good chances of winning back the trust that has been lost."
Governments score highly thanks to successful crisis management
Time and again, governments around the world have had to intervene to a great extent over the past months. Intervention was initially necessary to prevent the collapse of the financial system; subsequently it was employed to an increasing extent to support important economic areas and prevent the failure of system-relevant companies. This notable level of state commitment possibly led to a surge in confidence with 67% of respondents currently expressing satisfactory or high levels of confidence in the state. “If you take into consideration that the business world is traditionally critical of the state and in particular state intervention in the economy, this is a surprisingly high percentage,” comments Bruno Chiomento.
“State governments played a fundamentally major role in the curbing of the crisis, acting as a rapid deployment force.” It must be noted, however, that the current role played by the state is likely to be only of a temporary nature: “In the medium term, we have to reach a point where the state can step back from economic life to as great an extent as possible," explains Bruno Chiomento.
Inconsistent business conditions – but companies anticipate a slow upswing
Swiss companies have mixed feelings with regard to the situation in which they currently find themselves. 19% of them view their own business situation negatively, with 42% on the other hand being satisfied with their status. Construction and energy companies are the most satisfied with their situation. 50% of these companies feel positive about business conditions at the moment. The construction industry, however, expects its situation to deteriorate in the short and medium term. Service and industrial enterprises, on the other hand, are enjoying a sustained upswing.
Yet on the whole, the Swiss companies surveyed do not anticipate a serious deterioration in their situation. While 19% of Swiss enterprises are preparing for tougher times ahead over the next three months, 37% expect business to improve. In the medium to long term, managers are reckoning with a clear upswing, with the number of optimistic forecasts for the next 12 months climbing to 61%. As many as 78% of managers look to the next 2 years with optimism. Service companies are particularly confident with 84% of the service companies surveyed forecasting positive developments over the next two years.
“From the point of view of many companies, the situation has stabilized noticeably of late, albeit at a low level,” notes Bruno Chiomento. However, he believes that it is still too early to breathe a sigh of relief. “The emerging upswing is still on shaky ground,” he adds.
On average, companies are even expecting a further deterioration of the economic situation in Switzerland in the short term. 33% forecast negative growth over the next three months, while only 16% expect to see positive development. Yet just extending the forecast to six months puts the optimists in the majority.
According to Bruno Chiomento, there are a number of factors standing in the way of a proper recovery of the Swiss economy: “The feared increase in unemployment could cause private consumption to fall.” Added to that, there is the reticent approach of banks when it comes to granting loans and ongoing incertitude in the financial industry. “The banks are not yet out of the woods. While the situation does seem to have stabilized, we are unable to rule out any unwelcome surprises.”
Nevertheless, Bruno Chiomento is confident that the companies’ encouraging forecasts will ultimately come true: “The global economy has now passed its biggest test in decades, inasmuch that the collapse of the financial system has been prevented. We are now faced with clean-up efforts, which will protract over a long period of time and lead to painful adjustment processes.”
Rising energy prices the source of deep concern
The managers surveyed are currently very concerned about climbing energy costs. 69% of respondents say that this development is a reason for deep concern in the medium term. “The very high energy prices seen last year are still fresh in people’s minds and this is impacting on the mood of the respondents,” explains Bruno Chiomento.
The second issue of concern for companies is that of inflation. 57% fear the negative consequences of increasing money depreciation. “Governments around the world have run into high amounts of debt with their economic stimulus plans in an effort to combat the economic crisis and money is increasingly being injected into the market,” remarks Bruno Chiomento. “Of course worries of possible inflation are not completely unfounded. It all depends when and to what degree the central banks are able to take countermeasures.”
In addition, businesses are similarly concerned by government debt. 55% of those surveyed say that this development is a reason for deep concern in the medium term: “It will be a Herculean task to reduce this enormous mountain of debt,” confirms Bruno Chiomento. However, a short-term consolidation of public-sector budgets will be impossible to bypass.
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