Home News MEM industries experienced difficult year: no recovery in sight
Contacts  Ivo Zimmermann Ivo Zimmermann
Head of Communications division
+41 44 384 48 50 +41 44 384 48 50 i.zimmermannnoSpam@swissmem.ch
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MEM industries experienced difficult year: no recovery in sight

The strong franc left a deep imprint on the Swiss mechanical and electrical engineering industries («MEM industries») in 2011, especially in the second half of the year. In comparison to the previous year, new orders and sales figures stagnated throughout 2011 as a whole. Companies are being forced to implement a range of measures, some unpopular, to regain their ability to compete at international level. Adoption of the «Ferieninitiative» proposal to increase statutory holiday entitlement to six weeks a year in Switzerland would weaken them in this struggle and cost jobs. Moreover, Switzerland is not yet managing to fully exploit its potential for innovation. Swissmem is thus hoping for a «No» vote on the «Ferieninitiative» in the referendum of 11 March 2012. Swissmem is also calling for more resources to be allocated to promoting innovation.

Last year, any green shoots appearing in the Swiss mechanical and electrical engineering industries (MEM industries) were smothered by the strength of the Swiss franc. Despite an excellent first quarter, the level of new orders for 2011 as a whole came in slightly below that of the previous year (-0.5%). In the fourth quarter, the sector actually experienced a collapse in order intake (-18.6%), although this was partly attributable to a strong baseline effect due to an above-average figure for the same quarter the previous year. Despite high levels of new orders in late 2010 and early 2011, the MEM industries’ sales rose only moderately last year (+2.1%), and actually contracted by 2.5% between October and December.


Exports followed a similar pattern, with growth of 1.4% being recorded for 2011 as a whole and a year-on-year decline of 4.1% in the last quarter of the year. The moderate growth was driven by the Asian and US markets (+6.0% and +4.7% respectively). By contrast, exports to the EU (the sector's most important market) shrank by 1.3%.


MEM industries living off reserves
These figures come as no surprise. They reflect the development trends recorded over the past year. Since the 2008 slump, sales in the MEM industries have stagnated, and on average currently stand at around 25% below pre-crisis levels. The strength of the franc has made growth an impossibility and forced many companies into massive price concessions simply to obtain orders. Export prices declined by 4.1% in 2011 alone, with a direct and negative impact on margins. This has driven over a third of MEM companies into an operational loss. Many firms currently live off reserves and are fighting for survival.


Framework conditions damaging firms' ability to compete
Firms have reacted quickly to the strong franc by introducing operational countermeasures at an early stage. However, they are increasingly being forced to adopt tough and unpopular measures in order to regain their competitiveness. Action now also needs to be taken at policy level to influence the factors affecting the export industry and thus help it compete more effectively at international level. At the moment, the signs are inauspicious:


  • Looking at developments in unit labour costs, Switzerland has forfeited a considerable portion of its edge to key competitors such as Germany since 2000. Worldwide, Switzerland has the second-highest industry labour costs. In this respect, the Ferieninitiative, which would further increase labour costs if adopted, is pulling completely in the wrong direction. A «No» vote in the referendum of 11 March 2012 is crucial for the export economy and job retention.


  • The European Commission's «Innovation Union Scoreboard» published in early February 2012 has ranked Switzerland as the most innovative country in Europe for the fourth year in a row. However, Switzerland is not managing to fully exploit its potential for innovation. As part of its package of special measures to cushion the effect of the strong franc, in 2011 the federal government increased the budget of the Commission for Technology and Innovation (CTI) for innovation promotion by 100 million francs. Thereafter, companies submitted 1,064 funding applications in conjunction with universities. By the end of December 2011 the CTI had evaluated 545 applications, 246 of which were approved. The additional funding was then exhausted, and the remaining 519 applications were returned to the applicants unprocessed, thus allowing valuable innovation potential to be lost.


More resources required to promote innovation
Alongside efficiency gains and automation, Swiss industry currently needs to focus primarily on innovation in order to be successful at international level. Conditions for achieving this are excellent, and ideas are plentiful. What is lacking is the drive to implement these ideas. In the interests of the Swiss export industry's ability to compete and the jobs it provides, Switzerland must systematically exploit its existing potential for innovation. Massive strengthening of implementation-oriented, second-level development promotion is required. Swissmem is therefore calling for the following action:


  1. The CTI budget for 2012 needs to be increased by CHF 50 to 100 million to allow all those projects which deserved support but were not addressed in 2011 to be implemented.
  2. From now on, the CTI's basic annual budget needs to include at least CHF 150 million per year for projects alone.

  3. The CTI needs to be given a new organizational form that offers more flexibility and allows for a long-term and sustainable innovation promotion strategy.


Outlook for 2012
The tough economic environment will persist for the time being. Until the euro zone countries find a credible way out of the debt crisis, it is extremely unlikely that the Swiss franc will depreciate significantly. The euro/franc exchange rate is therefore likely to remain at only a little over 1.20 in 2012, resulting in further loss of margin for many companies compared to 2011. In addition, the EU economy, which is the key sales market for the Swiss MEM industries, is stagnating or may even be in slight decline. These two factors will weigh heavily on the MEM industries in 2012. According to the latest Swissmem survey, a clear majority of companies are proceeding under the assumption that they will not be able to generate any growth in 2012.
 
Zurich, 23 February 2012


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