SME Export Indicator 2nd quarter 2012: Optimism Is Back

The Credit Suisse export barometer, which records foreign demand for Swiss products, stands at a level of -0.33 in the second quarter of 2012. The figure is therefore higher again than in the first quarter, and also considerably above the growth threshold of -1. A slight decline was recorded in the past few weeks, however. Whether this decline already constitutes the end of the latest phase of acceleration will become apparent from developments over the coming months. In overall terms, growth prospects still appear cautiously optimistic.

Source: Federal CustomsCustoms duties are a form of tax payable to the State mainly when importing goods into a customs territory. From a protectionist perspective, protective duties play an important role as they are designed to afford domestic producers some protection against foreign competition. In most countries, customs duties are levied as an ad valorem duty, which means the level of duty payable is calculated as a percentage of the value of a given product. By contrast, Switzerland applies the “specific tariff” system for most goods. The specific tariff here is payable per 100 kg net weight. Given the numerous customs duty reductions under the General Agreement on Tariffs and Trade (GATT; now the World Trade Organization), customs are now much less important in terms of international trade. In Switzerland, the Swiss Federal Customs Administration (FCA) is responsible for levying customs duties. Internationally, customs administration authorities are members of the broader World Customs Organization (WCOOMD). Administration, Datastream, Credit Suisse Economic Research

The Osec SME export prospects survey also shows a brightening of export sentiment: It currently stands at 60.2 points, compared with 49.5 points in the preceding quarter. This figure is calculated from the export sentiment of SMEs for the second quarter of 2012, as well as effective exports in the preceding quarter. On this scale from 0 to 100, values of over 50 indicate a rise in exports. With the figure for the last two quarters having been below the growth threshold, a significant leap into the growth zone has now been achieved.

Source: Panel survey of more than 200 Swiss SMEs

38.0% of the Swiss SMEs responding to Osec's SME export prospects survey expect growth in exports during the coming quarter; this compares with 30.3% in the preceding quarter. 50.5% of SMEs expect the volume of their exports to stagnate; this had been feared by 43.2% at the start of the first quarter of 2012. In addition, only 11.5% of the SMEs fear a decline in exports compared with 26.5% at the start of the first quarter of 2012.

Paper Products Industry Misses the Growth Train

Slightly above-average export prospects are predicted for the metal industry, as well as electronics and precision instruments, according to the Credit Suisse export barometer. The paper products industry continues to exhibit the most subdued prospects of all.

The Osec SME export prospects survey highlights significant differences between the individual sectors: By far the most optimistic in terms of the development of exports in the second quarter of 2012 are firms in the consumer goods industry. The chemicals/pharmaceuticals, electrical engineering, services, and metal industry likewise expect solid growth in exports. The paper products industry again lies at the lower end, anticipating a decline in exports for the second quarter of 2012.

Source: Osec SME export outlook indicator

The companies that are predicting growth in exports over the coming months ascribe this mainly to product innovation (cited by 52%; multiple answers possible) and increased marketing efforts (49%). Marketing in particular is a significantly more important factor compared with preceding quarters. The "recovery in the economic environment" factor (cited by 25%) has also increased in significance.

SMEs that expect a decline in exports now attribute this primarily to competitive pressures: 54% named this as a factor, compared with 45% in the preceding quarter. By contrast, fears of an economic downturn have subsided: Just 42% of SMEs name this as a factor, compared with 65% in the preceding quarter. The third key factor, price reductions, remained stable at 35% of mentions compared with 34% in the preceding quarter.

The majority of companies will continue to invest at higher or similar levels in their export activities, especially in the areas that are apparently crucial to success abroad – namely, marketing and product innovation. On the other hand, they are cautious as far as investment in market research and human resources are concerned.

Europe Remains Dominant Export Market

According to the Credit Suisse export barometer, the main impetus to growth is currently expected to come from the US and some emerging-market countries such as India and Taiwan. As for Europe, the export trend is likely to remain one of weakness or even stagnation.

Notwithstanding both the strength of the Swiss franc and the euro crisis, Europe remains by far the most important destination region for Swiss exports. 95% of the Swiss SMEs surveyed by Osec intend to export to Europe over the coming six months, versus 90% in the preceding quarter (multiple answers possible). The most important European export market is still Germany: 80% of the SMEs surveyed export their goods or services to this country, followed by France and Austria with 52% each, and Italy with 49%.

Compared with the first-quarter 2011 survey, Europe and the neighboring countries grew significantly in importance: At that time, 77% of the SMEs said Europe was the export destination. Germany was cited by 67%, Austria by 43%, France by 42%, and Italy by 38%.

56% of Swiss SMEs will export to the Asia-Pacific region in the next six months (previous period: 55%). Foremost among the Asian export destinations is China (37% of mentions), followed by India (26%) and Japan (24%). 43% of SMEs are likely to export to North America in the coming six months, 34% to the Middle East/Africa region, and 25% to South America.

Source: Osec SME export outlook indicator

Less Concern about Strong Swiss Franc

The exchange-rate problem has eased slightly: At the start of the second quarter of 2012, 64% of the companies in the Osec SME export prospects survey expect the growth in their exports to slow as a result of the strong Swiss franc. In the preceding quarters, the figure was 70% and 73% respectively. The service sector, in which only 36% of firms surveyed expect a negative influence, is looking especially resilient. Consumer goods and machinery are especially sensitive about exchange-rate developments, with 76% of SMEs in both industries expecting a negative influence.

75% of the SMEs surveyed stated that the strong franc was adversely affecting their profit margins. In the preceding quarter it was 79%. Pressure on margins was especially pronounced in the metal industry (95%), electrical engineering (82%), and paper products (80%) sectors. The 25% of SMEs that were not concerned about any negative impact on profit margins said the main reason was that they were able to impose price increases.

Methodology

Credit Suisse Export Barometer

The Credit Suisse export barometer takes as its basis the dependence of Swiss exports on foreign export markets. In constructing the export barometer, we have drawn together important leading industry indicators in Switzerland's 28 most important export countries. These indicators generally have a forecast horizon of roughly one to two quarters. The values of these leading indicators are weighted on the basis of the share of exports that goes to each country and are consolidated to form a single indicator. Since the values in question are standardized, the export barometer is calibrated in standard deviations. The zero line corresponds to the long-term average growth in Swiss exports of 4.8% since 1985. Accordingly, the growth threshold lies below the zero line at around -1.

The chart 1 underlines the nature of the Credit Suisse export barometer as a forecasting tool; the correlation between export growth (moving average over 6 months) and the barometer with a lead time of one quarter is a good 0.82. In addition to providing forecasts for exports as a whole, the export barometer also makes forecasts about specific sectors or regions.

For more detailed information:
Credit Suisse (2009), Swiss Foreign Trade – Facts and
Trends, Swiss Issues Sectors, available at www.creditsuisse.com/research

Osec SME Export Outlook Indicator

The concept behind the calculation of Osec's SME export outlook indicator is quite simple: SMEs indicate whether they expect growth, stagnation or a decline in exports in the current quarter compared with the previous one. The same question is put with regard to export expectations for the following quarter
compared with the current one. To emphasize the forecast nature of the SME export indicator, expected export activity in the following quarter is weighted at 60%, with exports in the current quarter being weighted at 40%. The SME export indicator can range from 0 to 100, whereby figures between 0 and 50 show an expected decline in exports and figures of 50 to 100 an expected rise in exports.

The SME export outlook indicator is based on a quarterly survey of a fixed panel of more than 200 Swiss SMEs. Participants represent the pharmaceuticals/chemicals industry, machinery, consumer goods, the metals industry, paper, electrical engineering, the precision instruments industry, as well as services. Participants provide further information on export volumes, for instance the reasons behind a change in their export volume, export markets, etc. This information gives an accurate picture of the export activities of Swiss SMEs.

Find out more at:
www.osec.ch/exportindikator

Contacts
Credit Suisse AG:
Bettina Rutschi, Credit Suisse Economic Research
Tel. +41 44 334 39 38, bettina.rutschi@credit-suisse.com

Osec:
Patrick Djizmedjian, Media + Public Relations Manager / Media
Spokesperson
Tel. +41 44 365 55 16, pdjizmedjian@osec.ch

Credit Suisse AG

Credit Suisse AG is one of the world's leading financial services providers and is part of the Credit Suisse group of companies (referred to here as 'Credit Suisse'). As an integrated bank, Credit Suisse offers clients its combined expertise in the areas of private banking, investment banking and asset management. Credit Suisse provides advisory services, comprehensive solutions and innovative products to companies, institutional clients and high-net-worth private clients globally, as well as to retail clients in Switzerland. Credit Suisse is headquartered in Zurich and operates in over 50 countries worldwide. The group employs approximately 49,700 people. The registered shares (CSGN) of Credit Suisse's parent company, Credit Suisse Group AG, 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 www.credit-suisse.com.

Osec

Osec provides information, advice and support to Swiss and Liechtenstein-based SMEs in relation to their international business projects. To do so, it builds links between businesses, experts, as well as public and private organizations worldwide, and in that way makes a major contribution to facilitating international trade. Besides exports, Osec also helps promote Switzerland as a business venue, as well as imports that favor selected developing and transitioning countries. As part of the stabilization measures decided by the federal government, additional resources have been devoted to the creation of special  export platforms over the next two years. Further information about Osec can be found at www.osec.ch.

Disclaimer

This document was produced by Credit Suisse and Osec. It does not constitute the results of financial analysis. For this reason, the "Directives on the Independence of Financial Research" of the Swiss Bankers Association do not apply to this document.

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