Home News MEM industries: cause for concern
Contacts  Ivo Zimmermann Ivo Zimmermann
Head of Communications division
+41 44 384 48 50 +41 44 384 48 50i.zimmermannnoSpam@swissmem.ch
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MEM industries: cause for concern

The situation in the Swiss mechanical and electrical engineering industries (MEM industries) grew distinctly worse in the first half of 2019. Order intake declined by 12.5% compared to the prior-year period. Turnover (-1.9%) and goods exports (-1.0%) were also down. Existing economic policy risks have recently grown more acute, contributing to a strengthening of the Swiss franc. Moreover, the economy is weakening in major export markets. All of these factors are dampening expectations for the coming months. Swissmem anticipates a further decline in demand. In the absence of any major political and economic upheavals, stabilization at a lower level is the best-case scenario for the coming twelve months. Given these developments, Swissmem is calling on the Federal Council, Parliament and the administration to establish a more favourable policy environment in support of the industry.

New orders in the Swiss MEM industries fell by 12.5% in the first half of 2019 compared with the same period of the previous year. The decline was particularly pronounced in the second quarter of 2019, with 19.5% lower orders than in the year-back quarter. While it is true that orders were very high that year, so that the decline does reflect a certain baseline effect, the weakening is nevertheless considerable.

Sales were also lower in the first half of 2019, ending 1.9% below the figure for the same period of the year before. Broken down by quarters, the first saw a decline of 1.1%, the second 2.6%. The drop in turnover is less pronounced than in orders because companies are still feeding on the prior year's strong order books. The negative trend is impacting on large companies and SMEs in similar measure. 

The drop in orders has had an impact on companies' capacity utilization, which had reached a very high 91.6% in the fourth quarter of 2018 before receding to 89.3% in Q1 of 2019 and 86.6% in Q2. According to the latest KOF survey, the utilization rate was 83.7% in July 2019, well below the long-term average of 86.4%. Total employment in the MEM industries grew to 322,800 in the first quarter of 2019, 2.6% higher than in the year-back quarter. Mid-2019 employment figures are not yet available. Given the diminishing order volume and capacity utilization, however, Swissmem does not anticipate further job growth in the coming months. On the contrary, job losses and short-time work are already appearing in isolated instances.

Falling goods exports

In the first half of 2019, goods exports by the MEM industries reached a value of CHF 34.5 billion, 1.0% below the figure for the first half of 2018. There were significant differences in the exports of different categories of goods. Exports of metals (-6.2%), mechanical engineering (-5.2%) and electrical/electronic goods (-0.9%) were down. Only exports of precision instruments rose (+4.0%). Broken down by regions, goods exports to the EU (-1.5%) and Asia (-2.6%) saw declines, while exports to the United States remained positive (+5.1%).

Outlook significantly gloomier

The situation in the Swiss MEM industries grew distinctly worse in the first half of 2019. The outlook, too, has grown gloomier. Existing risks such as global trade and currency conflicts, a chaotic Brexit and smouldering debt problems in certain EU countries have grown more acute. As a result of these uncertainties, the economies of the MEM industries' most important export markets have cooled perceptibly, and forecasts have been continually adjusted downwards. In the wake of these developments the Swiss franc has again appreciated, impacting the MEM companies' price competitiveness. Swissmem Director Stefan Brupbacher has this to say: «The latest developments are cause for great concern. I anticipate a further contraction in demand. The best-case scenario is stabilization at a lower level in the course of the next twelve months. But this will occur only if there are no major political or economic upheavals.»

A good policy environment more important than ever

In the face of these developments, policy-makers must act to support industry in Switzerland. Hans Hess emphasizes, «We are not seeking subsidies. But we do want a better policy environment. And we finally need to get clarity in our relationship with the EU. I therefore call on the Federal Council, parliament, the social partners and the administration to take the export industry's needs seriously. Otherwise it will not be possible for the MEM industries to remain successful while based in Switzerland.» Swissmem has compiled a detailed list of demands for the current situation which addresses both domestic and international economic issues:

Foreign trade policy:

  • The institutional framework agreement with the EU must be signed before the end of October 2019. It guarantees nearly barrier-free access to the most important export market.
  • The free trade agreements with Indonesia and Mercosur must be quickly ratified. Moreover, the opportunity for a free trade agreement with the United States must be seized.

Domestic policy:

  • Demand threatens to collapse. To preserve jobs, therefore, the waiting period for short-time work must be reduced to one day and the duration extended from 12 to 18 months.
  • Despite considerable efforts, the industry has been unable to fully offset the erosion of margins and assets of past years. It is therefore unable to bear higher non-wage labour costs. Any expansion of social benefits (such as paternity leave) must be relinquished.
  • An offset rate of 100% is urgently needed in the procurement of the new fighter jet. This will create opportunities for SMEs.
  • Because continuing training is key to future competitiveness, the Federal Dispatch on Education, Research and Innovation (ERI) must include adequate funding for the projects launched by the various associations, such as the "MEM-Passerelle 4.0" retraining initiative.
  • Innovation has always been and still remains the key to sustaining competitiveness. Accordingly, Innosuisse project subsidy funding must be increased by CHF 20 million per year and the company cash matching requirement eliminated. In addition, the upcoming ERI Dispatch must ensure funding for the Advanced Manufacturing programme in the amount of CHF 80 million.

Read our quarterly report 2/2019 in Panorama (French or German)

For further information:

Ivo Zimmermann, Head of Corporate Communications
Tel. +41 44 384 48 50 / Mobile +41 79 580 04 84
E-mail i.zimmermannnoSpam@swissmem.ch

Philippe Cordonier, Responsable Suisse romande
Tel. +41 21 613 35 85 / Mobile +41 79 644 46 77
E-mail p.cordoniernoSpam@swissmem.ch