Recession due to Ukraine crisis not yet in sight for Swiss companies

Just under half (46%) of the CFOs of companies in Switzerland surveyed every six months by the auditing firm Deloitte remain convinced that the Swiss economy will continue to grow over the next twelve months and that a recession is not yet in sight. Although this proportion has almost halved since the last similar CFO survey in September 2021, it is still a good twice as high as the proportion of those who expect growth to slump (22%). More than half (57%) expect the company's outlook to improve over the next twelve months, and only 15 percent anticipate a negative financial development.

The other key corporate indicators in the Deloitte CFO survey are also all still on the positive side. A majority (64%) of respondents still expect revenues to grow; however, six months ago, the number was significantly higher (79%). More CFOs also still expect growth than decline in general investments and in expenses such as marketing or travel. The only area where things look less positive is operating margins. Here, optimistic and pessimistic attitudes are already almost equal. One important reason for this is likely to be inflation.

War as a damper on the upswing

"Switzerland has emerged from the Corona crisis more quickly than many other OECD countries. Swiss companies have already learned how to deal with supply chain problems during the pandemic. And the rising inflation rates in the US and the EU are no longer a surprise to them either," explains Deloitte CEO Reto Savoia. "I therefore currently expect that the war in Ukraine will slow down the post-Corona recovery, but that the Swiss economy will remain on a growth path this year."

The far-reaching lifting of the Corona measures a good month ago gave the Swiss economy an additional boost. However, this has almost completely fizzled out since Russian troops invaded Ukraine. Besides the war, corporate CFOs in Switzerland see inflation as the biggest risk (see chart). This applies not least to the rising input prices that companies have to pay themselves for energy, raw materials, intermediate products or services. Just under half of the respondents (42%) expect input prices to rise by five percent or more. Of those who expect input prices to rise, just over one-third (36%) expect to be able to pass on most of the price increase to their clientele. Nonetheless, CFOs do not anticipate a marked increase in consumer prices at home and expect consumer price inflation of 2.0 percent over two years.

Companies worry less about recession, more about inflation and supply chain problems

"Inflation is back again, also in Switzerland. However, Swiss companies are showing resilience. Although they have to accept losses in margins, many companies are very well positioned to defy the price increase. The strength of the Swiss franc is not affecting the export economy as it did a few years ago," explains Alessandro Miolo, Managing Partner for Audit & Assurance at Deloitte Switzerland. While supply chains have been overtaken in terms of CFOs' risk assessment by the current war events in Ukraine as well as inflation proving stubborn in the major Western economies, they still represent a major challenge for many Swiss companies. Most companies see themselves at least slightly affected (77%), with 16 percent even reporting severe impairments. Of the affected companies, 68 percent have to pay noticeably more for raw materials and intermediate products. Around half (52%) report higher transport costs - a consequence of higher energy prices and a wide range of logistics problems. Almost as many (40%) of the CFOs complain that intermediate products are not being delivered on time and one in four (24%) that they are no longer available.

Course of the war as a great unknown

Cancellations of orders by customers, on the other hand, are hardly a problem, and fewer CFOs are talking about weak demand as a risk than in the fall. "The war in Ukraine does not seem to have had a negative impact on consumer spending in Switzerland so far. However, if it continues for longer and even intensifies or expands, people will become more cautious again and forgo vacations and purchases. Sustained inflation would also put a strain on household budgets," Reto Savoia points out. "In addition, the economic signs in Germany, our most important trading partner, are looking less positive. The coming weeks and months will therefore show whether the economic upturn in Switzerland will really continue or whether we will not slip back into a recession."

Source: Deloitte