KOF Business Tendency Surveys: Swiss economy peaking despite war in Ukraine

The marked improvement in business activity in April can be attributed to the substantial easing of the situation in the hospitality sector and other services. These parts of the economy appear to be benefiting from the lifting of COVID-19 restrictions. The wholesale sector is also bouncing back. In addition, business in financial and insurance services is partially recovering after a sharp downward correction in March.

Upward pressure on prices remains

Companies are still planning widespread increases in sales prices. The upward pressure on prices thus continues and has intensified in some sectors. Price hikes are now being planned much more often in other services and by bars and restaurants, where price rises have so far tended to be fairly moderate.

The shortage of materials and intermediate products continues to be a serious problem for producing sectors such as manufacturing and construction. This shortage has become noticeably worse since the summer of last year. In January, more than half of the firms responding in the manufacturing sector reported a shortage of intermediate products. This problem worsened slightly in April, with 57 per cent of firms now feeling affected. This shortage is particularly acute in the engineering and car-making sectors as well as among manufacturers in the IT equipment, electronics and optics sectors.

Manufacturing still holding up well but outlook deteriorating

The Business Situation Indicator for the manufacturing sector fell slightly for the second month in a row. Nevertheless, the situation is currently rated as being similarly encouraging or even slightly better than in 2018, which was a fairly successful year for the manufacturing sector. Production has recently grown and capacity utilisation is clearly above average on a medium-term comparison following a further increase. Price trends continue to be turbulent, with availability of intermediate products remaining severely limited and their prices continuing to rise. Although companies, in turn, are continually raising their sales prices, they are only just managing to maintain their level of earnings. Looking ahead to the next three months, companies expect to see significantly lower growth in demand for their products than before.

Order books in the building-related sectors are fairly full

In the sectors associated with building activity – project engineering and construction – business in April was slightly dampened for the second month in a row. However, order books in both sectors are currently fairly full. The sizes of new contracts signed by project engineering firms in both residential and commercial construction have grown. Project planners are again complaining more frequently about a shortage of staff, especially as they intend to expand their provision of services in the coming months. Output in the construction industry is increasing, and capacity utilisation of machinery and vehicle fleets is rising. However, shortages of materials are worsening and are likely to push up construction prices further.

The situation in the retail and wholesale sectors is encouraging

Although business activity in the retail sector has deteriorated slightly, it is still predominantly buoyant. However, sales have recently faltered and earnings have come under pressure. Since their available inventories are nevertheless seen as fairly scarce, retailers themselves plan to order more goods. Sales forecasts are cautiously optimistic. However, prices are expected to rise unabated. Although the business outlook for the coming six months is therefore still positive overall, it is no longer as upbeat as it was in the spring of last year. Business activity in the wholesale sector is improving slightly.

The situation in the hospitality industry is easing across Switzerland

After a brief lull at the beginning of the year, the recovery in the hospitality sector is continuing apace. The business situation is improving not only in the mountain and lake regions but also in the major towns and cities. Sales of food and beverages in bars and restaurants are picking up significantly. Survey respondents reckon that demand for their services is likely to increase in the near future. However, costs are also coming under pressure, and many bars and restaurants plan to raise their prices. Hotels’ room occupancy rates continued to rise slightly in the first quarter of this year despite the uncertainty around the Omicron variant at the beginning of the year. Reservations for the current quarter are again higher year on year. These businesses expect to see a significant increase in foreign guests.

Financial and insurance service providers can no longer increase their earnings as much as they have previously

The business situation of financial and insurance service providers partially recovered in April after having weakened significantly in March. However, the outlook for business going forward remains subdued. These institutions’ earnings did not perform as well in the first quarter as they had done before, and forecasts for the current quarter are also more cautious than in previous quarters. Banks expect to see weaker demand stimulus from both private and corporate customers than in recent months. Their income from proprietary trading was disappointing from their perspective.

The recovery from the pandemic is manifesting itself in other services

The Business Situation Indicator for other services rose sharply in April. Nevertheless, it did not quite reach its pre-crisis levels of late 2019 and early 2020. Capacity utilisation in the transport, information and communication sectors as well as in business-related and private services surged in April, although transport capacity utilisation in particular remained below its pre-pandemic levels. The number of individuals working in services is increasingly seen as too low. Additional staff are being sought as demand forecasts remain positive.