Countries of the World/COUNTRYS.BIN/dp/0355/03559.txt

Text File | 1991-06-25 | 33KB | 559 lines

$Unique_ID{COW03559}
$Pretitle{442}
$Title{Switzerland
Chapter 3.    Construction}
$Subtitle{}
$Author{C. Frey}
$Affiliation{Union Bank of Switzerland}
$Subject{sector
year
construction
growth
sales
income
insurance
swiss
earnings
increase}
$Date{1990}
$Log{}
Country:     Switzerland
Book:        Economic Trends in Switzerland 1989/90
Author:      C. Frey
Affiliation: Union Bank of Switzerland
Date:        1990

Chapter 3.    Construction

Developments in 1989

     Construction activity expanded by a real 5.9% in the first three
quarters of 1989, based on national accounts data. Production rose by almost
8% in value terms, equivalent to a real increase of 2% after deduction of the
6% cost increase(Zurich building cost index), as reported by the Swiss
Builders Association of 2,600 member firms. As of September, the building
industry (excluding interior construction) employed 170,844 persons, or
2.8%fewer than in the previous year. While there were 8.8% fewer Swiss in
construction jobs, the number of foreign workers increased slightly by 0.6%.
Due to a tighter employment situation and the brisk pace of incoming orders,
construction firms invested 18% more in plant and machinery compared to a
year earlier. Productivity advanced by 8% and capacity utilization also
outpaced the 1988 level.

     Civil engineering activity expanded by 8.2% to Sfr. 5.2 billion in the
first nine months. Since production grew by only 4.2% during the same period,
the orders backlog increased by 12.7%. Among the contracts providing work for
an additional 9 months are some larger federal railway and highway projects.
From January to September, incoming contracts for public works expanded by
7.2% and construction activity by 9.8%. Engineering costs went up by 4%, a
below-average figure for the construction industry.

     By the end of the third quarter, general construction had expanded by
1.9% to Sfr. 8.8 billion. Orders for apartments increased by 5.3%, while
industrial and trade building contracts dropped by 1.1%. The volume of
planned new and enlarged buildings rose by 41.6% beyond the year-earlier
mark, despite some decline for new contracts. Industrial and trade building
production rose by 10.7% and apartments by 7.3%. Real growth for general
construction, after a 6% adjustment for rising costs (Zurich apartment
construction cost index), amounted to 3.4% over the previous year. In
October, the backlog of orders for industrial and trade building was 4.5%
higher over 1988, while orders for apartments were 10.5% higher.
Construction costs were kept in line with rises in the general price level,
thanks to the good construction environment; earnings also improved. Due to
greater outlays for plant and machinery, capacity and productivity advanced
further.

     The orders backlog, as of October 1989, exceeded the previous-year level
for all subsectors of interior work (sheet-metal work, heating and plumbing,
electrical installations +7%, cabinet-making +15%, metal construction +6%,
painting and plastering +11%). Employment rose 4% in electrical installations
and 2% in the other subsectors. Interior work costs rose similarly to
construction costs in general. In metal work (+11%) and elevator construction
(+7%), costs advanced at a faster pace, while cabinet-making (+3.4%), floor
and wall covering, painting and plastering costs lagged somewhat. For all
interior work, earnings were higher.

     According to third-quarter figures, incoming orders expanded the backlog
of architectural contracts by 15%, structural engineering by 7% and civil
engineering by 10% over the previous year. Fees for architects advanced by
4.8%, for engineers by 3.1% over the prior year, according to the Zurich
building cost index of October 1989. Although stronger than a year earlier,
earnings grew at a slower pace compared to work volume. Shortages of
qualified personnel induced architectural and engineering firms to invest
more in computers and software for drafting and administrative tasks.

Outlook for 1990

     Some easing of the construction boom is forecast for 1990, replaced by
more moderate growth. In the process, rising interest rates play an important
role. From mid-1988 to early 1990, the cost of construction credit rose from
4 3/4% to 7 1/4%  and first mortgages from 5% to 7%. Based on experience and
with other economic factors unchanged, it appears certain that a decline is
in store for construction investment growth of around 1% - 2% from mid-1989
up to the end of 1990. Also contributing to the slowdown will be the more
sluggish growth of the economy in general. According to third-quarter
figures, from 1988 to 1989 the annual growth of orders backlog in general
construction dropped from +23% to +9%. On the other hand, new building
credit, as of October 1989 up 14.3% over 1988, would indicate that
construction is still going to prosper. We estimate that overall construction
activity could increase by a real 2.5% in 1990. Construction costs could be
about 3% higher. Construction firms are planning to keep employment at
present levels and to expand plant and machinery only moderately in 1990.

     Civil engineering firms expect earnings to stagnate in 1990 due to only
slightly improved sales and declining costs. Although a few
government-financed projects are in progress, no expansions are planned for
employment or plant and machinery.

     With the occupancy level at 0.4%, its lowest point since the early
1970s, the steady demand for apartments could stimulate apartment
construction in 1990. Rising interest rates and costly building land in
central locations, on the other hand, reduced by 3.9% the number of building
permits issued for apartments in towns of over 5,000 inhabitants, compared to
the previous year. The demand for industrial and trade buildings is likely to
be stronger, so that general construction could gain overall. Construction
costs that will lag behind the general price level are expected to bring
earnings growth to a standstill.

     In 1990 interior work should profit from the building boom of the prior
year and, along with planning, achieve the most significant sales increase of
the construction industry. With only slightly rising costs, earnings could
again expand, although less strongly than in 1989. Investment will again
outpace the previous year's level.

     Architectural and engineering firms expect slower sales growth in 1990
although costs should gain slightly. The present difficulties surrounding
personnel can probably be resolved by adding staff members and increasing
investment.

R. Enz

Retail Trade

Development 1989 and Outlook 1990 for the Entire Sector

     Retail trade employed some 300'000 people or almost 16% of all employed
in the service sector in 1989. Not including automobiles, retail trade sales
were somewhere between Sfr. 65 and 70 million. An economically dependent
sector, retail trade profited from the continued positive consumer trend and
from an increase in income of about 6%. In terms of value sales were up by 4%
in 1989. However, due to a strong increase in consumer prices, sales were
only up a real 1.5%. The number of employees in retail trade grew by a good
4%. Concentration tendencies will continue. More money was invested to
increase the level of competitiveness.

     In 1990 the retail industry should be served well by the good mood of
the consumer as well as by a wage increase of about 6%. Most of those
surveyed within the industry expect consumers to benefit from a healthy
economy. As is the case in all sectors, positive sales expectations are based
on higher prices. Most of those surveyed expected a stable Swiss franc and a
decrease in import prices. In any case the majority of those surveyed ruled
out the possibility of higher purchase prices so the profit margin should at
least remain constant if not increase marginally. On the whole, profit
expectations will be just below the average of the entire sector. Invesment
should increase as employment numbers begin to s