In the fourth quarter of 2015, new orders received by the Swiss mechanical and electrical engineering industries (MEM industries) declined by 13.4% year-on-year as a result of the scrapping of the euro peg. This brought the index of new orders down to its second-lowest level for the last ten years. Viewed over the entire year, new orders declined by 14% compared to 2014. Sales followed a similar trend, declining by 7.3% in the fourth quarter of 2015 compared with the prior-year period. The decline in sales for the year as a whole was 7.0%. This negative trend affects big companies and SMEs to a similar degree.
Exports down across the board
Exports fell sharply for almost all MEM product groups in 2015. The biggest decline was in goods exports in the mechanical engineering segment (-7.2%), followed by the electrical engineering/electronics product group (-6.2%) and metals (-5.5%). Only in the precision instruments segment was the decline kept within limits, at -1.6%. Overall, MEM industry goods exports fell by 4.6% last year, while still reaching a total value of CHF 63.1 billion. The key sales regions showed mixed developments. Exports to the EU, by far the most important sales market, fell by 5.8%. Exports to Asia declined by 0.4%. However, goods exports to the USA rose appreciably last year (+4.9%). According to the latest figures from the Swiss Federal Customs Administration, MEM industry exports continued to fall in January 2016.
Huge slump in margins
The most dramatic slump, however, was in margins. Based on a self-assessment by Swissmem member companies, the average decline per company was 6 percentage points at EBIT level. This has driven about a third of those companies into the red.
At the bottom line, 2015 will go down as an annus horribilis in the history of the Swiss MEM industries. The sudden appreciation of the Swiss franc put them at a tremendous competitive disadvantage in the European market. How much of an impact this disadvantage is having can be surmised by taking a sideways glance at the German MEM industries. Stimulated by the weak euro, their exports rose massively last year (Q1: +8.2% / Q2: +10.7% / Q3: +6.9%). This boom comes not least at the expense of the market shares held by the Swiss MEM companies.
Measures will have an impact
After 15 January 2015, MEM industry companies acted quickly and set in motion a wide range of measures aimed at reducing the fallout from the strong franc. As firms had already exhausted the potential for efficiency and cost-cutting measures suitable for short-term implementation after the first currency shock of 2011, they had to increasingly resort to more drastic measures last year. Collectively, these triggered an accelerated structural transformation that is costing jobs. Last year, 1.7% of jobs, or around 2,500 positions, were lost in the 1,050 Swissmem member companies alone. This structural transformation is set to continue this year. A definitive evaluation of how many jobs these changes will cost will only be possible this time next year at the earliest.
How things will develop for the MEM industries going forward depends heavily on exchange rate and business trends in the key markets. As long as these parameters do not deteriorate further, Swissmem expects that the low point could be reached sometime this year and a recovery appears possible in the medium term.
Prospects for the Swiss MEM industries remain intact
In addition to innovation and efficiency gains, industry digitization is also presenting good opportunities for the Swiss MEM industries. Swiss industry is essentially well placed to assume a position of leadership in these far-reaching technological and social developments. The digitization of the entire value chain promises significant productivity gains, creates the foundation for innovative products and services, and makes it possible to implement new business models. This is true of both large companies and SMEs. Not only businesses, but also state education and research in universities and universities of applied science and state promotion of innovation need to concentrate on this.
Government also needs to play a significant role
Industry can only transform these favourable conditions into commercial success if it has a good economic policy framework. Swissmem regards the following four points as especially important:
- Preserve the bilateral agreements with the EU: The bilateral agreements must remain in place in order to secure unobstructed access to our most important market.
- Conclude new free trade agreements: New free trade agreements, for example with the USA or India, would ensure privileged access to the markets that currently have the biggest growth potential.
- No further interventions in the liberal jobs market: That means conserving flexibility as a strength of the Swiss labour market, for example in terms of working hours. Yesterday's prescriptions are not up to dealing with modern forms of work.
- Stop the rising tide of regulation: The number of federal regulations businesses are having to deal with each year have reached monstrous proportions. The constant stream of new cost drivers and administrative hurdles is leading directly to a further deterioration in competitiveness and therefore has no place in today's market.
Policymakers can nurture the readiness of companies in the MEM industries to invest long-term in Switzerland as a business location if they take vigorous action to improve the economic policy framework. That means the Federal Council, Parliament and administration putting out a genuine signal to businesses, here and now, that the four issues mentioned above will be tackled immediately and comprehensively.
Berne, 29 February 2016
For further information, please contact:
Ivo Zimmermann, Head of Communications
Phone: +41 (0)44 384 48 50 / mobile: +41 (0)79 580 04 84
Philippe Cordonier, Communications Manager, French-speaking Switzerland
Phone: +41 (0)21 613 35 85 Mobile: +41 (0)79 644 46 77