MEM industries: market conditions remain very challenging

In 2019, new orders received by the Swiss mechanical and electrical engineering industries (MEM industries) decreased by 10.6% on 2018. Sales also fell year-on-year by 4.5%. Overall, the contractions in sales were slightly more marked among large companies than SMEs. The negative business trend also had an impact on companies' capacity utilization, which dropped from 91.6% in the fourth quarter of 2018 to 83.0% in the fourth quarter of 2019. This puts it substantially below the long-term average of 86.4%. The number of employees in the MEM industries rose from 320,500 to 326,900 in the first nine months of 2019, but then fell back to 324,600 in the fourth quarter of the year. Due to the difficult prevailing conditions, this downward trend seems likely to continue into the near future, particularly as short-time working and restructuring exercises have been on the increase recently.  

Significant declines in exports to neighbouring countries

The unsatisfactory business performance is being reflected in the MEM industries’ goods exports, which declined by 2.1% year-on-year in 2019, posting a value of CHF 68.3 billion. Exports to the EU* fell by 3.2%, due primarily to the drop in exports to neighbouring countries Italy (-11.4%), Germany (-6.4%) and France (-5.9%). Exports to Asia also fell, by 1.7%. By contrast, goods exports to the USA increased by 3.5%. The key export groups were impacted to different degrees by the decline. Compared to 2018, exports in the mechanical engineering, metal and electrical engineering/electronics categories fell by 5.9%, 5.7% and 1.4% respectively. Only precision instrument exports continued to grow, by 1.2%.

Strong franc and coronavirus epidemic fuel uncertainty

“Overall, 2019 was a difficult year for the Swiss MEM industries”, says Swissmem CEO Stefan Brupbacher. “The global trade conflicts had a dampening effect on economic activity in the key markets. In Europe, the structural change in the automotive industry created still more uncertainty, which had a significant impact on the Swiss automotive supply and machine tools industries.” Moreover, compared to 2018 the Swiss franc strengthened markedly against the euro last year, which is likely to have caused the earnings situation of the MEM industry companies to worsen once again.

The outbreak of the coronavirus epidemic is putting additional strains on an already sluggish business climate for industry. For various businesses in the MEM industries, supply chains have been compromised or even completely interrupted. Moreover, the overvaluation of the Swiss franc against the euro has become even more pronounced since the beginning of 2020, which is significantly hampering the Swiss MEM industries’ ability to compete in the key EU market. “If the negative impacts from the coronavirus epidemic and the current extent of the Swiss franc’s overvaluation continue, the situation for the MEM industries will become critical”, fears Stefan Brupbacher.

No to the “Kündigungsinitiative” and Yes to new free trade agreements

In this challenging environment, several political decisions due in the near future have an even greater significance. Due to the “guillotine” clause, adoption of the “Kündigungsinitiative” to revoke the agreement with the EU on the free movement of persons would put an end to the bilateral approach, without offering an alternative. Hans Hess, President of Swissmem, emphasizes: “In the MEM industries in particular, the consequences would be serious, as around 56% of MEM exports go to the EU*. The MEM industries would lose their virtually unobstructed access to their most important market. That’s why this unnecessary and damaging initiative must be rejected.”

Against the backdrop of a lack of growth stimuli, it is even more urgent that the free trade agreements with Indonesia and the Mercosur states, which are now ready for signing, be ratified swiftly. They create new market opportunities without neglecting the sustainability aspect. Referendums opposing these agreements must be rejected without fail.

In the current spring session, moreover, Parliament would be in a position to improve the operating environment for industry, or at least prevent any further worsening. One improvement it could bring about would be removing customs duties for industry, as proposed by the Federal Council. It is also imperative that no further investment controls be introduced. These are unnecessary and harmful to Switzerland as a business location. The federal government can support companies by deploying the existing instruments in keeping with the current situation. If jobs are to be safeguarded, the rules on authorizing short-time working must be made more liberal. Furthermore, sufficient funds must be made available for promoting innovation as this will bear fruit in the medium to long term. We do not, however, need economy-stimulating programmes which – in the worst case – would even be financed by the Swiss National Bank (SNB). The SNB is an independent body and, in the interests of the economy, should remain so.

*EU excluding the UK