Home News Slight upwards trend in MEM industries but at low level
Contact Person  Ivo Zimmermann Ivo Zimmermann
Head of Unit
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Slight upwards trend in MEM industries but at low level

While the Swiss mechanical and electrical engineering industries (MEM industries) have come through the worst of last year’s economic downturn, the volume of orders on hand remains low despite a double-digit growth rate (+22.6%). Although rallying demand is giving rise to expectations of export gains this year, capacity utilization of 76.6% is still considerably below the long-term average of 86.1%. The euro’s tumble in value is hitting the MEM industries particularly hard.

After 15 hard months, prospects for the Swiss MEM industries are looking up again. New orders from abroad are up 21.8% over last year, while domestic business posted an even higher rise of 23.1%. Figures from Swissmem’s 290 reporting members for the first quarter of 2010 confirm what was already emerging at the end of last year: The MEM industries are recovering from the toughest crisis of the last 50 years, albeit slowly and relatively modestly.

Aggregate sales volume ended 6% lower than the previous year’s figure for the same quarter, falling domestically by -5.1% and on international markets by -6.4%. This decline was significantly more moderate than last year’s, when sales plummeted by 20.3%. Quarterly sales thus fell to a level last seen in 2006. Exports have rebounded thanks to positive development on the Asian market (+5%) in the first quarter of 2010, levelling off at a plus of 0.3%. However, the 0.7% drop-off in exports to other European countries – our companies’ principal market – still lags behind last year’s level. Exports to the United States have likewise diminished (-1.7%).

Differing product markets

Individual subsectors within the MEM industries are experiencing differing market developments. The metals and metal goods sectors have displayed the strongest recovery (+14.5%), followed by electrical engineering and electronics (+4.6%). In contrast, negative developments continue to hound precision instruments (-1.6%), vehicle construction (-5.6%) and machine tools (5.9%). The low level of orders in recent months has eroded capacity utilization even further, down to 76.6% - amounting to a 6.2% drop year-on-year. And while the rate at which jobs are disappearing may have slowed, some areas have yet to be hit with even more cuts.

For 2010, the majority of the industries’ businesses expect markets to continue to mend, with hopes focussing not only on China, Hong Kong and the Indian subcontinent but on Germany, France and the NAFTA countries in particular.
The euro as profit margin killer
Swiss machine tool manufacturers are worried additionally by the trend in the euro-franc exchange rate, which has seen the value of the euro fall by some 7 percent more over the first 5 months of this year to where it is now worth just under CHF 1.40. Despite extensive foreign currency purchasing by the Swiss National Bank, doing everything possible to stabilize the euro exchange rate, it ultimately failed to sustainably avert the decay. Even as the current exchange rate severely impacts the profit margins so necessary to our companies’ survival, Swissmem does not believe that stronger intervention by the national bank could solve the problem. However, if the euro exchange rate persists at today’s level for long, it cannot be ruled out that numerous enterprises will find themselves forced to shift at least portions of their production abroad in order to survive.

Swissmem calls for adequate funding of research and development
It is thus all the more essential that the Swiss MEM industries are able to base their undertakings on sound framework conditions. Particularly in times of crisis, the Commission for Technology and Innovation (CTI) has proven to be an excellent instrument for promoting research and development in the MEM industries. This is why Swissmem has expressly welcomed the increase in CTI funding implemented as part of the Swiss Federal Council’s third stabilization programme, as well as the easing of eligibility requirements for firms to participate. This instrument not only promotes innovation: it also opens up new opportunities for companies and contributes to creating new jobs. CTI’s success has now resulted in a financing shortage that, in turn, has led to a tightening of criteria for allocation of funding – which ultimately impairs technology transfer. Swissmem is therefore urging that the CTI budget be increased immediately to enable selection to continue based on the usual, existing standards. Swissmem is also calling for the proportion of research expenditures to not be shifted further in favour of the Swiss National Science Foundation, as has been the case in recent years. In line with its commitment to ensuring that Switzerland remains a strong location for industry and research, Swissmem believes that in order to retain the country's attractiveness as a research location, it is crucial that funding be provided to turn research results into successful innovations. Viewed in this context, Swissmem considers it absolutely vital that adequate funding be put at CTI’s disposal.

Damocles’ sword – electricity and water prices

The Swiss MEM industries also depend on economical electricity prices in order to stay competitive. As is generally known, the initial stage of market liberalization has failed to produce a functioning electricity market, which is why the Swiss Federal Government has launched efforts to revise the nation’s Federal Electrical Supply Act. Swissmem has great expectations that revision of this legislation will succeed in creating an electricity market with internationally competitive electricity prices. Swissmem considers Parliament’s intention to increase water rates in conjunction with raising the compensatory feed-in remuneration (KEV) to be fully misguided. Such measures would drive electricity prices even higher at the expense of Switzerland as an industrial location.

Zurich, 19 May 2010

For further information, please contact:

Ruedi Christen, Head of Communications
Tel.: +41 (0) 44 384 48 50
Mobile: +41 (0) 79 317 24 09
E-mail: r.christennoSpam@swissmem.ch