Home Media Corner Media Releases MEM industries: gratifying order situation – substantial risks
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Head of Communications and Public Affairs
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MEM industries: gratifying order situation – substantial risks

The Swiss mechanical and electrical engineering industries (MEM industries) continued to grow in the first half of 2022. New orders rose by 10.1% year-on-year, sales by 12.1%, and exports by 9.0%. This is only part of the picture, though. Supply chain problems and soaring energy and commodity prices have pushed up production costs significantly in some cases. Companies are also being hit by the rapid nominal depreciation of the euro. All these factors are putting pressure on firms’ margins. On top of all this there is the looming threat of energy shortages this winter. These must be prevented at all costs. Interruptions to the supply of electricity and gas would jeopardize both companies and jobs in these industries. “Save energy” is the current watchword. Companies, individuals and the public sector all need to pull together as a nation in order to prevent shortages, with the assistance of additional measures. At the same time, energy supplies need to be secured for the medium to long term.

In the first half of 2022, new orders received by the Swiss MEM industries increased by 10.1% compared with the first half of 2021. After six successive quarters of positive growth rates, order volumes are now 30% higher than before the crisis (Q4 2019). Growth nevertheless slowed in the second quarter of 2022. A similar picture emerges for sales, which rose by 12.1% compared with the first half of 2021. High order levels indicate that sales should continue to increase in the second half of the year. Both SMEs and major companies are benefiting from this positive business trend.

Firms recorded high capacity utilization in the second quarter of 2022, at 90.3%. According to the latest KOF business tendency survey, this figure fell to 89.5% in July but is still well above the long-term average of 86.2%. No half-year figures for employment are available yet. In the first quarter of 2022 there were 320,900 people working in the MEM industries, up 2.4% on the same period a year ago. Furthermore, the number of job vacancies at Swissmem member companies has risen by 32% within a year.

Goods exports continue to grow in all major markets

In the first half of 2022, goods exports by the MEM industries amounted to CHF 36.5 billion, up 9.0% on the prior-year period. The MEM industries increased exports to all key markets (Asia +14.1%, EU +8.5%, US +7.5%). Exports rose in all product groups. Metals exports went up by 13.3%, electrical and electronics by 8.9%, precision instruments by 7.6%, and mechanical engineering by 7.4%.

Storm clouds gathering

Swissmem Director Stefan Brupbacher says: “Orders and sales in our sector are gratifying at present. However, these figures are only half the story. Supply problems, and above all the rapid increase in energy and commodity prices, have had a significant impact on production costs. Many companies are unable to pass these higher costs on to their customers quickly. The rocketing energy costs in particular pose an existential threat to some companies.”

There has been a general worsening of sentiment in the Swissmem member companies, with 30% expecting orders from abroad to decline over the next twelve months. This is 12 percentage points higher than in the survey for the first quarter of 2022. The proportion of businesses expecting orders to rise has shrunk from 35% to 29%. This worsening mood is reflected in the Purchasing Managers’ Index (PMI) for manufacturing. In the euro zone, which is the most important market for Swiss industry, the PMI for July 2022 fell below the growth threshold for the first time since mid-2020.

Considerable uncertainty regarding energy supplies

Gas and electricity shortages are looming this winter because of the war in Ukraine. Industry relies on an uninterrupted supply of energy for its production processes. By no means all MEM companies are in a position to use flexible production planning to cope with power cuts. Meanwhile, those that need high temperatures for their production processes are entirely dependent on uninterrupted power supplies. A power cut would force them to bring production to a complete halt. As Martin Hirzel, President of Swissmem, warns: “It is vital to prevent electricity or gas shortages. They would jeopardize companies and jobs in our industry.” Industrial companies that are technically reliant on uninterrupted power supplies must therefore be exempted from any gas/electricity rationing.

It is reassuring to know that the government is attempting to develop sizeable reserve capacities for electricity production this winter, but this alone will not be sufficient. Swissmem proposes the following measures:

  1. Start saving energy immediately. Companies, the government and the general population all need to pull together as a nation. Homes, offices, production halls, museums and shopping centres should not be heated to more than 19°C this winter. Any accompanying reduction in comfort is justified if companies, and thus jobs, can be saved.
  2. Solutions for companies under threat: Rocketing electricity prices pose an existential threat for many manufacturing companies, which have ended up in this exceptional situation through no fault of their own. Electricity producers and the public sector as their owners and industrial consumers therefore need to work together to find solutions to defuse the situation.
  3. Switch dual fuel installations from gas to heating oil. Swissmem estimates that this could save up to 20% of annual gas consumption. Companies that are unable to meet their target agreements on reducing CO2 emissions because of this should not be penalized, according to the Federal Council. This needs to be implemented quickly. However, the use of heating oil can result in additional costs. Further measures are therefore necessary in order to utilize the full potential for savings.
  4. Create targeted incentives: . Incentives for the owners of reserve power stations and emergency power generators are needed in order to increase electricity production in the short term. Just as important are incentives to encourage energy-intensive companies to temporarily reduce their electricity consumption.
  5. Schedule production at night or at weekends. In a shortage situation, it is important to avoid peaks in electricity and gas consumption. Industry can help by switching production to nights or Sundays. This will require a straightforward, non-bureaucratic authorization process on the part of the authorities.

In addition, Switzerland must not fail to ensure a secure, sustainable energy supply for the medium to long term. There should not be any bans on certain types of technology. The Energy Strategy 2050 will have to be adjusted. It is clear from the current situation that we cannot abandon both nuclear and fossil fuels at the same time. The government’s plan to build two or three gas-fired power stations by 2025, with a total output of up to 1,000 megawatts, is a step in the right direction. It will also be necessary to streamline the licensing process. As Martin Hirzel, President of Swissmem, urges: “The 15 hydropower projects referred to at the Round Table last December must be completed as quickly as possible. Switzerland can no longer afford years of delay over power station projects.” A draft bill limiting the right to object to these projects and streamlining the process would allow the electorate to vote in a referendum on the subject by the end of 2023.

Bringing the AHV pension system into balance

On 25 September 2022 the Swiss population will vote on stabilizing the AHV pension system (AHV 21). Swissmem’s Executive Committee unanimously supports voting ‘yes’ to the proposal. The ‘baby boom’ generation is set to retire over the next ten years. As a result, the labour market will be losing more workers than it gains. This will place an even greater burden on the AHV pension system. Without reform, the state pension scheme's receipts will no longer meet its outgoings from 2025 onwards. After that, the annual deficits would need to be covered by the AHV fund itself, which is not a sustainable solution.

The AHV system therefore urgently needs reform so that future generations will also be able to benefit from the pensions it funds. AHV 21 is the first step, paving the way for further reforms aimed at making the state pension system financially sustainable. Swissmem welcomes the fact that the reform will give people greater flexibility regarding when they retire. It will create incentives to continue working longer, thus alleviating the industrial skills shortage and strengthening Switzerland as a manufacturing centre.

This reform will bring the AHV system back into balance for all generations. In order to symbolize this, more than 200 apprentices from Swissmem member firms are currently helping to build the world’s longest see-saw at Turbinenplatz in Zurich. A steel construction nearly 29 metres long will be installed in a single day, beating the previous world record by three metres. Various National Councillors from the Canton of Zurich will be there to support the initiative.

On 25 September 2022 the electorate will also be voting on whether withholding tax should be reformed. Again, Swissmem’s Executive Committee supports voting ‘yes’ to this proposal. The abolition of withholding tax would assist the big industrial companies by allowing them to raise finance in Switzerland more easily instead of having to go to foreign financial centres. This would strengthen Swiss industry as a whole, thus benefiting suppliers too.

For further information please contact:

Ivo Zimmermann, Head of Communications
Tel. +41 44 384 48 50 / mobile +41 79 580 04 84
E-mail i.zimmermannnoSpam@swissmem.ch

Philippe Cordonier, Communications Manager, French-speaking Switzerland
Tel. +41 21 613 35 85 / mobile +41 79 644 46 77
E-mail p.cordoniernoSpam@swissmem.ch

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Last update: 30.08.2022