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Head of Communications division
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The strength of the Swiss franc is impacting on sustainable recovery in the Swiss MEM industries

Thanks to a rise in new orders, the Swiss mechanical and electrical engineering industries (MEM industries) emerged from the profound economic crisis in 2010. However, a survey of Swissmem members shows that the strength of the Swiss franc is exerting tremendous pressure on margins, resulting in another operating loss for a large number of companies. Swissmem is calling for systematic promotion of innovation, new free trade agreements, no further increases in incidental labour costs and no restriction of the free movement of persons.

The Swiss mechanical and electrical engineering industries (MEM industries) benefited from the growth in the global economy in 2010. New orders rose 16.4% on the previous year, even reaching 29.3% in the fourth quarter. Sales also rose once more – by 5.9% – between October and December 2010. Looking at the year as a whole, however, the MEM industries’ sales were lower than in 2009 (-1%).

At first glance these figures convey the misleading impression that all is well once again in the MEM industries. However, closer inspection soon puts them into perspective. The industries’ sales for 2010 are still far below their pre-crisis level (down 21% on 2008). Moreover, the strength of the Swiss franc is undermining the positive effects of the economic recovery.

MEM industries hard hit by strong franc
The results of a survey of Swissmem members on the strength of the Swiss franc illustrate the negative effects clearly. 87% of respondents said that the devaluation of the euro had «seriously» (54%) or «moderately» (33%) impacted their business. SMEs with fewer than 250 employees were markedly harder hit than the larger companies.

The problem is not due to demand in the world markets, but to the contraction of margins caused by the rapid, 17 percent rise in value of the Swiss franc. To avoid losing orders, many of the exporting companies had to reduce their prices. 48% saw their margins fall by more than 6 percentage points as a result. Unless action is taken to counteract a loss of margin of this size, an average MEM company will find itself incurring a direct operational loss. In the medium term this will jeopardize the viability of many companies.


Measures to ensure a sustainable future for the MEM industries
The vast majority of companies have already take action to counteract the problem. Short-term measures focus on purchasing more inputs in euros, currency hedging transactions and, if feasible, price increases. However, sustainable results can only be achieved through rigorous cost management, enhanced efficiency and, above all, the promotion of innovation. This takes time and needs an appropriate setting. Swissmem is therefore making the following demands:

  1. The Commission for Technology and Innovation (CTI) should be awarded 50 million francs in extra resources in 2012. The Federal Council’s decision of 16 February is a step in the right direction, but not enough in itself. Promoting innovation is the most effective way of safeguarding competitiveness. Last year, only 43% of the projects that were submitted received funding. A large number of projects failed to get off the ground even though experts considered them worthy of support.
  2. The government needs to sign the planned free trade agreements with China and India as quickly as possible. Exporting industry needs unhindered access to these new growth markets.
  3. The free movement of persons must not be limited in any way. A sufficient number of skilled employees is essential if exporting industry is to remain competitive. It is a fact that there is a shortage of skilled workers at all levels, and the inflow of new, young specialists is slowing down all the while. The MEM industries are therefore obliged to recruit suitable staff members from abroad.
  4. The Confederation, cantons and social partners need to safeguard the flexible labour market. Swissmem will oppose further regulation and any additional increase in incidental labour costs.
  5. Importers need to pass on currency-related gains to customers and reduce their prices accordingly.

Outlook
The pace of growth is likely to slacken over the next few months. In view of the recent increase in new orders, sales look set to rise in the coming months. However, with little prospect of an improvement in the currency situation, the pressure on margins is very unlikely to let up. This means that many companies are either generating no profit at all or their profit is too low to secure their medium- and long-term future. Swissmem expects the negative effects of the strong Swiss franc to intensify during 2011.


Zurich, 24 February 2011


For further information, please contact:


Ivo Zimmermann, Head of Communication
Tel.: +41 (0)44 384 48 50

Mobile: +41 (0)79 580 04 84
E-mail: i.zimmermannnoSpam@swissmem.ch