Home News Difficult situation in the MEM industries
Contact Person  Ivo Zimmermann Ivo Zimmermann
Head of Unit
+41 44 384 48 50 +41 44 384 48 50 i.zimmermannnoSpam@swissmem.ch

Difficult situation in the MEM industries

The situation in the Swiss mechanical and electrical engineering industries (MEM industries) has deteriorated further in the last few months due to the continuing strength of the Swiss franc. According to a Swissmem survey, 36% of member companies have now moved into loss-making territory. In addition, the second quarter marked the start of a slowdown in new orders. The various counteractive measures taken by companies, and the current exchange rate, are not enough to bring about a sustainable improvement for the businesses involved. In Swissmem's view, a further weakening of the franc is required.

In October 2011, Swissmem repeated the survey of its members on the impact of the strong Swiss franc, which it had previously conducted at the start of the year. The results show that the situation in the mechanical and electrical engineering industries (MEM industries) has deteriorated further in the last few months. 65% of companies (February 2011: 54%) stated that the strength of the franc had «seriously» impacted their business. Alongside declining orders and sales, pressure on margins has also intensified despite numerous operational measures taken to counteract the problem. Over half the companies report margin erosion at EBIT level of more than six percentage points. 36% of MEM companies (February 2011: 28%) are now posting operating losses.

Third quarter 2011: Negative trend strengthening
The general figures on business activity within the MEM sector likewise reveal a negative trend, although the overall picture for the first nine months as a whole remains positive. Sales rose by 3.9% and new orders by 6.4%, as a result of the good order intake at the end of last year and in the first quarter of 2011. Beginning in the second quarter of 2011, the trend turned negative. New orders were 2.6% down on the previous year in the second quarter, and slumped even further in the third quarter to finish at -4.9%. In addition, price pressure continued unabated due to the strong franc. In the first nine months export prices in the MEM industries fell by 4.8%. It therefore comes as no surprise to find companies increasingly pessimistic about their business outlook. At present, more than 35% of companies surveyed anticipate a negative trend in orders from abroad over the next 12 months. At the end of the first quarter of 2011, only 14% did so.

Franc remains too strong
Current industry figures, the results of the Swissmem survey, corporate guidance and, not least, highly cautious economic forecasts, all point to a difficult first half in 2012. It is true that the setting of a minimum exchange rate of CHF 1.20 per euro by the Swiss National Bank (SNB) at the beginning of September brought a certain amount of calm after the turbulent summer months, above all restoring companies' confidence in planning. However, 72% of respondents said that an exchange rate of CHF 1.20 per euro is not enough to bring about a sustainable improvement in the situation. If the exchange rate remains at its current level, the MEM industries will see further job losses and relocation of production abroad during the next six months.

Swissmem's expectations
To dampen the negative impact of the strong franc, Swissmem would like to see the following action taken:

  1. The SNB has repeatedly indicated its willingness to resort to further measures to weaken the Swiss franc if necessary. In Swissmem's opinion, that need clearly exists at present. Swissmem leaves it to the SNB to decide how this goal is to be achieved.
  2. The MEM industries’ growth markets are outside Europe. In order for these industries to better seize the opportunities that present themselves, the federal government must conclude the planned free trade agreements with India and China as quickly as possible.
  3. The promotion of innovation by the state in recent years has suffered from a lack of continuity. However, promoting innovation is a task that requires long-term commitment and, therefore, a steady approach. To enable the continuous promotion of innovation within business, Swissmem is calling for the Commission for Technology and Innovation (CTI) to be given a higher basic budget, which will be maintained at a consistent level.
  4. In connection with innovation, Swissmem once more calls attention to the great importance of the free movement of persons. Innovation is only possible if there are outstanding skilled workers and specialists at every level within the industries, but these are currently lacking. Consequently, access to the European labour markets is vital. Swissmem thus opposes any restrictions on the free movement of persons from the EU.
  5. Calculated in euros, Switzerland has seen a massive rise in unit labour costs in recent years compared with its main competitors. In the interests of maintaining the Swiss export industries’ ability to compete, policymakers must ensure that the burden of taxes, charges, duties and regulation on these industries is reduced.
  6. To save the companies under threat, and at the same time keep jobs in Switzerland, businesses must be given greater room for manoeuvre. Swissmem therefore calls on the social partners not to become mired in intransigence, but instead to demonstrate a willingness to accept forward-looking solutions.

Zurich, 15 November 2011

For further information, please contact:

Ivo Zimmermann, Head of Communications
Tel.: +41 (0)44 384 48 50 / mobile: +41 (0)79 580 04 84
E-mail: i.zimmermannnoSpam@swissmem.ch