Switzerland's mechanical and electrical engineering industries (MEM industries) recorded a 2.0% year-on-year fall in order intake in the first quarter of 2020. Turnover was down 5.7%, while exports fell by 8.4%. The figures reflect the situation in the MEM industries prior to the Covid-19 lockdown, rather than how things stand at the moment. In fact, the full impact of the pandemic will not hit the MEM industries until the second or third quarter of 2020. Order cancellations, purchasing manager indices (PMIs) at record lows around the globe and a significant worsening of expectations among entrepreneurs are bringing fears of a massive slump. It is important that the Swiss government has relaxed the travel conditions for EU/EFTA countries as of 11 May 2020. The same now also needs to happen quickly for third countries. In addition, the government must extend the deadline for bridging loan applications, lengthen eligibility for short-time work compensation and boost innovative capacity.
New Orders MEM industries (Base: 1st q. 2001 = 100)
Switzerland's (MEM industries) suffered a 2.0% year-on-year fall in order intake and a 5.7% drop in turnover in the first quarter of 2020. The negative trend that began back in mid-2018 therefore continued in the early part of this year. Its origins lay in weak business activity in MEM markets as well as in the Swiss franc's continued appreciation against the euro. Capacity utilization has therefore fallen to a low level: The KOF survey shows a figure of 83.6% for the first quarter, versus a long-term average of 86.4%. Capacity utilization fell to 80.9% in April – an initial consequence of the lockdown.
Fall in exports to all regions
Goods exports by the MEM industries fell by a substantial 8.4% year-on-year in the first quarter of 2020 to CHF 15.8 billion. The decrease in exports was mainly the result of a sharp drop in incoming orders in the previous year. The figures also reflect the initial impact of the pandemic following the lockdown in key markets. Exports to the EU in particular were down sharply (‑10.4%). However, there was also a fall in exports to Asia (-7.0%) and the United States (‑6.0%). All categories of goods were affected by the negative export trend. Mechanical engineering exports declined by 12.1%, while exports of metals were down by 8.8%, electrical/electronic goods by 4.3% and precision instruments by 4.5%.
Gloomy outlook for Q2 and Q3
Business figures for the MEM industries in the first quarter of 2020 show the situation before the lockdown, the full consequences of which will not be felt until the second or third quarter of the year. Current readings for the purchasing managers index (PMI) point to a huge slump in key markets. Having fallen to a figure of 49.2 in February 2020, the PMI for the Eurozone plummeted to 33.4 in April (where a figure below 50 indicates a downturn). The results of the latest Swissmem survey of member firms likewise indicate a negative trend:
Expectations of MEM firms for the coming twelve months have deteriorated massively, with 70% anticipating a decline in new orders from abroad. The figure at the end of 2019 was just 28%.
Almost half the MEM companies (48%) report the cancellation of orders as a result of the pandemic. These sales will not be recouped in the coming months.
Cancellations and dwindling orders resulted in 80% of MEM companies being forced to apply for short-time work.
Swissmem President Hans Hess is deeply concerned: ʺThe situation for MEM companies worsened significantly in April. All leading indicators point to a massive fall in sales from the second quarter of 2020 onwards. At the moment, it’s impossible to say when things will pick up.ʺ
Industry severely hampered by travel restrictions
Selling industrial goods is often a lengthy process. Sales and project meetings, demonstrations and trial runs are all essential. The same applies to the acceptance of goods ex works, installation at the customerʹs premises, as well as repairs and servicing. The relevant specialists need to be able to travel in order to carry out these activities, as do customers. The current travel restrictions therefore rank among the top three issues for 67% of MEM firms. These restrictions make it extremely difficult to win new orders as well as complete existing ones.
A plea to government
Cushioning the negative impact of the coronavirus epidemic on Switzerlandʹs MEM industries will require improvements to the overall operating environment. On 12 May 2020 the Finance Committee of the Council of States will already have an opportunity to take action when it deliberates on the discontinuation of customs duty for industry. Removing this levy would generate savings of about CHF 125 million p.a. for the MEM industries alone, as well as relieving them of a great deal of administrative work. “Removing customs duties for industry would bring about a real improvement and send out a powerful signal of support for Swiss industry”, says Hans Hess. Swissmem calls upon the two houses of the federal parliament in its summer session to approve this proposal of the Federal Council so that the industry duties cease to apply at the beginning of 2021.
In addition, the following demands – implementation of which will yield benefits in the near term – are of particular importance to Swissmem:
An easing of travel restrictions: Swissmem is pleased that the Swiss government has eased inbound travel restrictions for specialists, technicians and customers from EU/EFTA countries. As stated by Federal Councillor Keller-Sutter during the extraordinary session and in the circular from the State Secretariat for Migration dated 8 May, the cantons can now also process new registrations and applications for short-term employment and entry which – in light of compelling economic interests – cannot be delayed. These include applications relating to customer acquisition (including sales meetings) and those relating to specialists for the acceptance of machines, etc. The MEM industries have been consistently implementing the FOPH’s rules for weeks. The risk to health is therefore low. In contrast, the economic problems are now considerable. The industries are therefore reliant on the cantons adopting generous practices. As of 8 June at the latest, moreover, the same easing measures should also apply to relevant individuals from third countries. The deadline for submitting bridging loan applications must be extended to the end of 2020. Since liquidity bottlenecks will not become an issue for many MEM companies until the second or third quarter, the businesses affected must have the opportunity to submit credit applications after 31 July 2020.
The duration of compensation for short-time work must be increased to 18 months. Some businesses were already forced to introduce short-time work in 2019 due to weak business activity in target markets and will soon reach the end of the current 12-month eligibility period.
Research activities at our universities must be resumed. The ability of companies to collaborate with universities and research institutions is crucial to innovation and hence also to Switzerlandʹs competitiveness in the medium and long term.
Industrial tariffs need to be abolished. This would provide annual cost savings of around CHF 125 million for the MEM industries alone. A reduction in the administrative burden is also a pressing issue for the companies concerned.