New orders received in the Swiss MEM industries fell by 8.6% year-on-year in the first nine months of 2020. Looking at the third quarter only, the year-on-year decline stood at 4.8%. A similar picture is becoming apparent for sales. From January to September 2020, turnover fell by 11.5% compared with the previous year. In the third quarter of the year, the decline amounted to 8.4%. The drop in sales is hitting SMEs significantly harder than large companies. This negative business trend also had an impact on companies' capacity utilization: at just 77% in the third quarter of 2020, it was significantly below the long-term average of 86.4%. According to the latest KOF business tendency survey, it rose to 78.3% in October 2020. These figures only express the sector average. The situation in the individual companies varies greatly depending on the sub-industry and target markets.
Exports fall in all markets
According to figures from the Swiss Customs Administration, goods exports by the MEM industries recorded a year-on-year decline of 13.9% in the first nine months of 2020. The total merchandise value was CHF 43.9 billion. All key sales markets followed a negative trend. Exports to the USA fell by 10.8%, those to the EU by 8.2%, and exports to Asia – despite a slight recovery in China – declined by 5.8%. The declines in exports also affected all key groups. Mechanical engineering sector exports decreased by 15.1%, metals by 14.2%, electrical and electronics by 10.6%, and precision instruments by 10.3%.
Weak recovery, but further setback possible
At this point, compared to the respective year-back periods new orders received by the MEM industries since mid-2018 have been on the decline for nine consecutive quarters. As a result, the sector has lost around 30% of its order volume. The MEM industries are thus experiencing an unusually long slump. However, there is hope that the low point was passed in the second quarter and that the business situation is now beginning to stage a weak recovery at a very low level. Thus, in the third quarter of 2020 the order volume grew by 7% compared with the extremely weak second quarter. And the mood of MEM industry employers also brightened slightly in the third quarter of the year. In the second quarter, just 22% of employers expected to see increasing orders for the next 12 months. In the third quarter, this share rose to 38%. At the same time, the proportion of those assuming continuing order losses fell from 51% in the second quarter to 29% in the third. Having said that, there is little evidence of any sustainable upturn on the horizon. Rather, the second wave of Covid-19 infections has brought with it the danger of a renewed setback. “The uncertainties are very substantial”, says Swissmem CEO Stefan Brupbacher. “This is having a serious, worldwide impact on investment confidence”. As a prime example of this, he cites the collapse in machine tool exports (-34.2%), a typical capital good.
Reopen access to Covid loans
In view of the various uncertainties in play, the upswing is quite likely to be further delayed and to gain momentum only slowly. That means the liquidity needs of the MEM industry companies could increase markedly over the coming months. During the first wave of infections in spring 2020, the MEM companies were very restrained in their uptake of the bridging loans. This was due in part to the ban on using the loans for new investments. This ban is now likely to be retroactively lifted for the loans taken out up until the summer. Moreover, at that time the businesses still had liquidity reserves at their disposal, reserves which have now been used up in more and more firms. Stefan Brupbacher therefore urges: “The Covid-19 loans programme must be reactivated. Liquidity loans in the form of repayable grants are a “minimally invasive” instrument for supporting firms. For the state sector, they are better than the outright grants proposed as part of the hardship scheme. These would be irrevocably lost to the state.”
The Swissmem CEO is further insisting that MEM companies must not be forced into a lockdown at either cantonal or national level. “The industry has never been a transmission hotspot and has implemented the protection concepts rigorously. This is also attested to by Suva.” However, the greatest obstacles within the MEM industries, according to Brupbacher, are the many restrictions on business travel. “These must not be tightened further in Switzerland”, he stresses. The Swiss Federal Council must work towards keeping travel to international sales markets possible. In addition, it is important for Swissmem that the capacities for rapid and PCR tests be expanded. If the epidemiological situation stabilizes, there should be an option to use these to shorten quarantine times for contacts of Covid-19 cases. For short-time working, the reduction to one sick day in the new year should be carried on.
No to the “responsible businesses” and “war material manufacturers” initiatives
In view of the difficult situation in the Swiss MEM industries, it is vital that no new obstacles be placed in the path of businesses by politics and Swiss voters. In particular, the “responsible businesses” initiative must be rejected. It is damaging to Switzerland as a location for industry and does not benefit developing and emerging economies. The “war material manufacturers” initiative must also be rejected. In the medium term, this initiative threatens to impede financing for around 3,000 companies in the MEM industries, which will inevitably bring existential problems for these firms.