Home News MEM industries: the strong franc is making its mark
Contact Person  Ivo Zimmermann Ivo Zimmermann
Head of Unit
+41 44 384 48 50 +41 44 384 48 50 i.zimmermannnoSpam@swissmem.ch

MEM industries: the strong franc is making its mark

Sales in the Swiss mechanical and electrical engineering industries (MEM industries) fell by 8.1% year-on-year in the first quarter of 2015. New orders were particularly hard hit, declining by 17.1%. Even more of a burden on the MEM companies is the huge pressure on their margins: almost two thirds of them are expecting margins to drop by at least 4 percentage points. Consequently, 31% of MEM companies are assuming an operating loss for 2015. This confirms the fears that the renewed strength of the franc will leave visible marks on the MEM sector. Sadly, as yet there have been almost no indications from government that it intends to support Swiss industry with improved framework conditions. Swissmem is calling on policymakers to finally start taking the concerns of industrial companies and associations seriously.

New orders received by the MEM industries fell by a huge 17.1% year-on-year in the first quarter of 2015. Part of this decline is doubtless attributable to a base effect, as the prior-year reference quarter was very strong. Nevertheless, the index of new orders slipped to its lowest level since 2011. Sales also developed negatively in the first quarter of 2015, declining by 8.1% compared to the first quarter of 2014. Falling sales and orders are affecting large companies and SMEs equally. Due to the strong order intake of the previous year, capacity utilization is still relatively high, standing at 87.6% in April 2015, only slightly below the annual average for 2014 (88.2%).  

Divergent trends in the export markets

According to figures from the Swiss Customs Administration, exports by the MEM industries fell by 1.4% year-on-year in the first quarter of 2015, reaching a merchandise value of CHF 15.9 billion. The key sales regions developed in very different ways. Exports to Asia and the USA rocketed by 9.7% and 9.5% respectively. However, this pleasing development was not quite enough to offset the marked decline in exports to the EU (-4.9%). From the perspective of individual product areas, mechanical engineering sector exports fell substantially (-8.5%). Exports of metals and of electrical engineering and electronics products also fell (-3.3% and -2.4% respectively). The only slight rise in exports was recorded by the precision instruments sector (+2.6%).  

Dismal outlook 

The business figures now available for the first quarter of 2015 confirm the fears expressed by Swissmem after the currency peg was scrapped. Swissmem is expecting short-time working in the MEM industries to increase considerably in the second half of this year. What the figures do not show is the tremendous pressure on margins. In a survey of Swissmem member companies carried out in March 2015, almost two thirds (63%) of participants indicated that they were expecting their margins to decline by at least 4 percentage points due to the strong franc. Because of this, almost a third (31%) of the surveyed companies are assuming that they will post an operating loss for 2015. 

Over the past three years, most companies have already made a major effort to regain their ability to compete. The now visible consequences of the franc's renewed strength are fuelling the fear that the measures firms will be taking in future could have far-reaching, structural consequences for the Swiss MEM industries. According to the survey of March 2015, 16% of MEM businesses are planning to relocate at least some sections of their supply chain to other countries if the exchange rate should remain at the level of CHF 1.05 to the euro. If the exchange rate reaches parity, 28% of MEM firms would take this step. 

When will government wake up?

Companies are now in the process of planning their next steps and will be taking the necessary decisions in the near future. Sadly, there have been almost no indications as yet that the government intends to support Swiss industry with improved framework conditions. The latest examples are the decision by the National Council's Committee for Economic Affairs and Taxation to cut export promotion funding, and cuts to the e-Government initiative, which SMEs in particular had been hoping would bring a reduction in red tape. Swissmem's call for an expansion of support for innovation through the Commission for Technology and Innovation (CTI) has largely fallen on deaf ears in the federal parliament. Added to this is a further dilution of the "Cassis de Dijon principle" by the National Council. While this has little to do with the MEM industries, it demonstrates the unwillingness of the National Council to support competition and the ability of businesses to compete at international level. The basic attitude of making things harder for businesses instead of easier is a hallmark of various political groups, and this is reflected in a number of open dossiers. It starts with energy policy and then continues its merry way through labour law and the inheritance and gift tax initiative and all the way to the critical stance on new free trade agreements.

Swissmem is calling on policymakers to open their eyes at long last, recognize the severe strains on key areas of the economy, and take the concerns of Swiss industry seriously. A few initial positive signals to that effect would be reducing sick days during short-time working arrangements, lengthening the maximum period for short-time work compensation to 18 months, and increasing funding for the CTI.   

If a definite policy turnaround does not occur, many of the decisions about to be made by companies could be to the detriment of Switzerland as a business location – with serious long-term consequences for both industry and the Swiss economy as a whole. And last but not least, Swissmem is calling on the SNB to do everything in its power to quickly bring down the massively overvalued Swiss franc.    

For further information, please contact:

Ivo Zimmermann, Head of Communications 

Phone: +41 (0)44 384 48 50 / mobile: +41 (0)79 580 04 84

E-mail: i.zimmermannnoSpam@swissmem.ch

Philippe Cordonier, Communications Manager, French-speaking Switzerland

Phone: +41 (0)21 613 35 85 

Mobile: +41 (0)79 644 46 77

E-mail: p.cordoniernoSpam@swissmem.ch