Over the first three quarters of 2016, new orders received by the MEM industries rose by 12.4 percent compared to the previous year. The rises in the second (+18.5%) and third (+18.4%) quarters were particularly impressive. However, this pleasing development conceals a base effect caused by the weakness of the corresponding prior-year quarters. Nonetheless, in the third quarter of 2016, the new orders index reached a level not seen since 2008 for this particular quarter of the year. Companies’ expectations for the coming 12 months have improved continuously over the course of the year, both at large companies and SMEs. According to the latest Swissmem survey, 42 percent of companies are anticipating an increase in orders from abroad. Just 12 percent fear a decline in orders.
Negative sales development, modest export figures
In the MEM industries, the time lag between the receipt of a new order and its reflection in sales figures averages six to nine months. It is therefore hardly surprising that sales for the first nine months of 2016 actually declined by 3.4 percent compared to the prior-year period. This decline is the consequence of the weak order intake in 2015. Large companies and SMEs have been equally affected by this decline in sales.
Developments on the export front likewise show that the anticipated recovery has been slow to kick in. Goods exports by the MEM industries amounted to CHF 47.1 billion in the first three quarters of 2016, equivalent to a year-on-year rise of just 0.4%. There were significant differences in the exports of the different sub-sectors. Precision instruments recorded a rise of 5.2 percent, electrical and electronics exports a rise of 2.0 percent, and metals a rise of 2.2 percent. By contrast, mechanical engineering exports declined by 1.4 percent. A breakdown by individual sales regions also reveals an uneven picture. Exports to Asia declined by 6.3 percent in the first nine months of the year. By contrast, exports to the EU – by far the most important market for the MEM industries – rose by 3.5 percent. Exports to the US likewise increased by 4.2 percent, thereby providing evidence of the continuing strong growth momentum of this market. Whether protectionist barriers really will be erected under the new US President remains to be seen.
Shock of strong franc yet to be fully overcome
Overall, the situation of the Swiss MEM industries presents a mixed picture. While new orders and the assessments of companies themselves points to a recovery, the latest sales and export figures show that the positive trend has yet to feed through to factory floor level. Furthermore, the latest restructuring announcements have given rise to a degree of uncertainty. In view of the recent improvement in order intake, sales are likely to return to growth over the course of next year. However, the question of whether this will deliver any improvement in the bottom line still remains. The franc remains clearly overvalued against the euro. Indeed, it has even appreciated further in recent weeks. Peter Dietrich, CEO of Swissmem, commented as follows: «I know from our numerous contacts with Swissmem member companies that the situation differs tremendously from company to company. As before, many businesses – particularly SMEs – are having to contend with heavy pressure on their prices and margins. A number of these companies are fighting for survival.»
Whether the Swiss MEM industries will experience a sustainable recovery in the near future depends primarily on the development of the exchange rate going forward, as well as on economic developments in key sales markets. It is extremely important that the franc does not appreciate any further against the euro. And if companies are to see a return to acceptable margins, the opposite will be required, i.e. the franc will have to depreciate against the euro. Economic forecasts in the key markets of the Swiss MEM industries indicate only modest growth in 2017. Any new geopolitical or economic dislocations with the power to derail this modest growth trajectory would be a serious blow. Domestically, the acceptance of Corporate Tax Reform III is an essential step towards improving the economic policy parameters for Swiss industry. Both large companies and SMEs will benefit from this development. Improved parameters are essential if the private sector is to continue to contribute to national prosperity in future.
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Ivo Zimmermann, Head of Communications
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Philippe Cordonier, Communications Manager, French-speaking Switzerland
Phone: +41 (0)21 613 35 85
Mobile: +41 (0)79 644 46 77