Technology industry recovery delayed

27/08/2024

The Swiss technology industry (mechanical and electrical engineering industries and related technology sectors) is currently not making any headway. In the first half of 2024 – and compared with the prior-year period – sales were down 5.1%, order intake declined by 3.3% and goods exports were 4.5% lower. The Purchasing Managers' Index (PMI) for the industry is at a very low level in most European markets; the situation is slightly better only in Asia and America. There is therefore little hope of a turnaround before 2025. Nevertheless, the technology industry companies continue to rely on Switzerland as a location for business: three quarters of the Swissmem member companies are planning to invest in Switzerland over the next three years. Despite a shortage of skilled labour, the high qualification level of the available workforce and the liberal labour market are factors that favour Switzerland. The latter must absolutely be maintained. Swissmem therefore categorically rejects both the unions' demands to make collective employment agreements universally binding and costly new regulations.

New orders received by the Swiss technology industry fell by 3.3% in the first half of 2024 compared to the same period of the previous year. The industry thus had its sixth consecutive quarter of declining order intake compared to the year-back period. Sales were also 5.1% lower compared to the first half of 2023. Large companies were more severely affected by this trend than SMEs. Capacity utilization within companies came to 84.1% in the second quarter, below the long-term average of 86.2%. 329,900 people were employed in the technology industry in the second quarter, which is 400 less than in the previous quarter.

Exports: Asia top, Europe flop

In the first half of 2024, goods exports by the Swiss technology industry fell by 4.1% compared with the same period of 2023 and amounted to CHF 34.6 billion. The sales trend in the European markets (EU -6.8%) is particularly disappointing; Germany saw a decline of 8.4%, making for an especially weak performance. The problems in the automotive industry, the high energy costs for energy-intensive sectors and the EU policy that is both hostile to growth and entails an increase in regulations are negative factors. By contrast, the Asian markets – in particular China (+6.6%) and India (+5.4%) have advanced noticeably over the year-back period. Exports to the USA also increased (+2.3%). Almost all product groups were affected by a drop in exports. Mechanical engineering exports were down by 5.2%, those in the metals segment by 5.0%, and precision instrument exports fell by 3.3%. The only slight growth in exports was seen in the electrical engineering/electronics segment (+0.7%).

Still no turnaround in sight

Stefan Brupbacher, Swissmem Director, comments: "The business figures in the Swiss technology industry show that the recovery is still delayed. To put it bluntly, the problems for our companies are rooted in Germany, which is where around a quarter of our exports go. The Swiss technology industry is not suffering from a structural problem. But the recession across the border is obviously impacting on our business."

The key indicators do not inspire much hope of a turnaround in the second half of 2024. In most European markets, the Purchasing Managers' Index (PMI) for the industry still points to a contraction. Companies expect to see growth momentum solely in non-European markets, i.e. India and the USA. Stefan Brupbacher is hopeful as regards the next year: "I anticipate a turnaround in 2025." The Swissmem member companies support this assessment. 32% of companies expect the number of orders from abroad to increase over the next 12 months, while 25% of them anticipate a lower order intake and 43% expect the level of business to remain the same.

Switzerland is attractive as a centre of industry

Despite the downturn and the difficult geopolitical environment, margins in the Swissmem member companies remained relatively constant between 2021 and 2023, attesting to the considerable resilience and adaptability of the Swiss technology industry. However, one in five companies is operating at a loss, and a quarter of them are only achieving a slightly positive margin.

However, the companies continue to rely on Switzerland as a location for industry. According to a Swissmem survey, three quarters of the companies are planning to invest in Switzerland in the next three years. These investments will be made mainly in the fields of production capacity, plant and equipment, digitalization and product development. Despite a shortage of skilled labour, points in Switzerland's favour include the high level of qualification of the available workforce – thanks in turn to the dual vocational training system – as well as first-class universities and the fact that the free movement of persons makes it easy to recruit from the EU. The labour market is also more flexible than in neighbouring countries.

The reasons why companies decide not to invest in Switzerland do not come as a surprise: these are primarily the high wage costs and the strong franc, which regularly encounters a strong headwind in the export-oriented technology industry. For Swissmem it is therefore important that the SNB takes appropriate steps in good time, in line with its mandate, should there be a renewed shock-like appreciation surge.

Martin Hirzel, President of Swissmem, sees confirmation in the survey results: "Switzerland is still very attractive as a location for industry. This is due primarily to the operating conditions, which are generally good." The liberal labour market is one of the main locational advantages, the survey found. "The overarching importance of the liberal labour market is, for Swissmem, a clear mandate for not allowing the business associations to make concessions to the unions as part of the negotiations on the Bilateral III agreements. I therefore firmly reject the unions' demands for collective bargaining agreements to be deemed universally binding. This would be the end of a liberal labour market." Swissmem supports the Federal Council in the current negotiations on the Bilateral III agreements – but not at any price.