MEM industries: Between hope and fear

As a consequence of the Covid pandemic, new orders received by the Swiss mechanical and electrical engineering industries (MEM industries) in 2020 decreased by 6.5% compared to 2019. Sales also fell year-on-year, by a significant 9.8%. This poor business trend also had an impact on companies’ capacity utilization. Starting from an already low 83.0% in the fourth quarter of 2019, it fell to 77% in the third quarter of 2020 according to the Swiss Economic Institute (KOF). Capacity utilization subsequently returned to 81.7% in the period up to January 2021. These figures are averages. The impact of the pandemic varies considerably from company to company. The number of people employed in the MEM industries is also lower, sliding 2.0% from 324,900 to 318,300 in the first nine months of 2020.

Exports: Volume down by CHF 7.6 billion

In 2020, goods exports by the MEM industries fell by a substantial 11.2% year-on-year to CHF 60.7 billion, translating into a volume loss of CHF 7.6 billion. The declines affected all key sales regions. Exports to the US were down by 12.6%, to the EU by 11.9%, and to Asia by 7.5%. All important product groups were impacted. Compared to 2019, mechanical engineering sector exports decreased by 12.4%, metal exports by 11.2%, electrical and electronics exports by 9.4%, and precision instrument exports by 8.5%.

Encouraging signs – but also the threat of a renewed slump

Business in 2020 was dominated by a massive, pandemic-related slump in order intake, sales and exports in the second quarter. Relaxations of Covid global containment measures ushered in a steady recovery. In the fourth quarter of 2020, order intake almost reached the year-back level. There are encouraging signs that this recovery trend will carry on in 2021. The PMI, for instance, is pointing to some strong growth in almost all sales markets. Companies’ expectations for the coming twelve months are also more positive than at the end of the third quarter of 2020. According to the latest Swissmem survey, 45% of companies are anticipating an increase in orders from abroad (Q3/20: 38%). At the same time, only 17% are expecting orders to decline (Q3/20: 29%).

On the other hand, there are fears that a third pandemic wave could cause a renewed global slump. The situation is also aggravated by ongoing structural challenges. Global trade conflicts have not been resolved, which in turn puts a strain on the investment climate. Switzerland’s future relationship with the EU, by far its most important market, has not yet been clarified. In the throes of the pandemic, it is also frequently forgotten that the Swiss franc is still overvalued against the euro and has also appreciated considerably versus the US dollar and the currencies of some emerging countries. «We find ourselves wavering between hope and fear», remarks Swissmem Director Stefan Brupbacher. «If the MEM industries are to achieve a sustainable recovery, what is needed are a rapid, nationwide vaccination campaign, sufficient testing capacity, and internationally recognized, counterfeit-proof vaccination certificates. This is the only way that technicians, service personnel and sales staff can travel again. And it is crucial, given that around 80% of Swiss MEM industries’ business is conducted abroad.» 

Raise maximum period for short-time work compensation to 24 months

Weak global demand for capital goods prior to the pandemic meant that a number of MEM companies were already on short-time working at the beginning of 2020. They will reach the current maximum 18-month period for short-time work compensation in mid-2021. «It is essential to avoid further pandemic-related job losses at companies that have been hit particularly hard», stresses Martin Hirzel, President of Swissmem. «For this reason, the maximum period for short-time work compensation needs to be raised to 24 months.» In addition, it is vital for the MEM industries that a new raft of Covid-19 liquidity support measures are drawn up so that they can be implemented fast when needed. Swissmem explicitly supports the relevant preparations being made by the Federal Finance Administration.

Free trade agreement and customs duties on industrial products

The general operating conditions also need to be improved over the medium term. The vote on 7 March 2021 provides an initial opportunity in this context. A YES to the free trade agreement with Indonesia would facilitate access to a promising market of the future. The abolition of customs duties on industrial products would also allow parliament this year to provide its unwavering long-term support to the export industry.