Home News Pressure builds on companies in the MEM industries
Contact Person  Ivo Zimmermann Ivo Zimmermann
Head of Unit
+41 44 384 48 50 +41 44 384 48 50 i.zimmermannnoSpam@swissmem.ch

Pressure builds on companies in the MEM industries

For more than five quarters now, the Swiss mechanical and electrical engineering industries (MEM industries) have been recording declines in new orders. Sales have stagnated, while pressure on prices and margins has persisted. As a result of the gloomy economic prospects for the EU – the key sales market – there is no recovery in sight. Although MEM companies are continuing to display astonishing resilience, few are in a position to absorb any further negative developments.

In contrast to the generally healthy economic state of Switzerland as a whole, the situation in the heavily export-oriented MEM industries remains fraught. In the second quarter of 2012, the overall order intake for the MEM industries declined by 4.3% on a year-on-year basis – having already posted a decline of 16.8% in the first quarter (total decline for first half of 2012: -11.1%). This means that new orders for the MEM industries have declined for five successive quarters in a year-on-year comparison.

Although sales figures scraped into positive territory (first half of 2012: +1.4%), this was the result of new order book that was still strong at the beginning of 2011, and this effect is now wearing off. In the first three months of 2012, sales were up by 2.1% compared to the previous year’s equivalent. In the second quarter, sales stagnated on a year-on-year basis (+0.7%). With new orders having declined for many months, sales figures could swing into negative territory in the second half of 2012.

All the key indicators suggest that there will be no short-term improvement in the situation confronting the MEM industries. The Purchasing Managers’ Index (PMI), the key indicator for business development in the manufacturing sector, has been languishing below the growth threshold in both Switzerland and the eurozone for many months. On the currency front, the Swiss franc remains overvalued. The pressure on the export prices of Swiss manufacturers has therefore persisted (first half of 2012: -2.3%). As a result, there is likely to have been an even greater erosion of margins for MEM companies, which in turn will have a direct impact on their profitability. The one positive factor is that employment numbers have not (yet) declined. However, capacity utilization in the MEM industries is starting to decline. While this amounted to 89.9% on average in the first quarter of 2012, it declined to 85.3% in the second quarter of the year.

Unsurprisingly, the companies of the MEM industries have subdued expectations of developments over the next 12 months. Where new orders from abroad are concerned, more than 50% of companies are expecting a continuation of the status quo. The proportion of companies expecting a weaker order intake has increased from 16.1% in the first quarter to 23.4%.

No further burdens on MEM companies
Given this difficult background situation, companies have been forced to consistently push through measures to improve competitiveness. Swissmem expects both Swiss politicians and the MEM industries’ social partners to support these endeavours. Any further burdens placed on the MEM industries, such as new duties or new regulations, would weaken companies in their struggle to maintain a competitive international position. This would in turn jeopardize Swiss production sites and Swiss jobs.

Among others, one area that could impose new burdens is the Federal Council’s «Energy Strategy 2050» and its corresponding implementation measures. These proposed measures fail to take sufficient account of the MEM industries’ requirements for greater security of supply and competitive electricity prices. Higher duties for CO2 emissions and the compensatory feed-in remuneration system («KEV») would artificially increase the cost of energy.

Swissmem is opposed to these measures. They would lead to a unilateral rise in costs compared to foreign competition, and would therefore impair the international competitiveness of the MEM industries. In addition, Swissmem is calling for energy-intensive businesses to be relieved of the KEV burden as swiftly as possible – and without this leading to a corresponding increase in the burden on other manufacturers.

In the area of foreign trade policy, the MEM industries need advantageous free-trade agreements with both China and India, even in the face of resistance from the agricultural sector. In view of the anticipated long-term economic weakness in Europe, customs-free access for MEM companies to these growth markets is more important than ever before.

For further information, please contact:
Ivo Zimmermann, Head of Communications
Tel.: +41 (0)44 384 48 50 / Mobile: +41 (0)79 580 04 84