New orders received by the Swiss technology industry fell by a total of 9.6% in the first half of 2023 compared to the same period of the previous year, while sales languished at the previous year’s levels (+0.7%). The downward trend gained momentum in the second quarter. In a year-on-year comparison, new orders were down by 14.3% and sales by 3.4%, the decline in sales hitting large companies harder than SMEs. Second-quarter capacity utilization was 88.2%, only slightly lower than in the first quarter (89.5%) and still above the long-term average of 86.2%. This is because companies still have high levels of orders in hand, a situation that is also reflected in their headcount figures. 329’900 people worked in the technology industry in the second half of 2023, 9’000 more than in the previous year.
Declining exports to all major markets
In the first half of 2023– 1.4% fewer than in the prior-year period, goods exports by the Swiss technology industry amounted to CHF 36.1 billion. While this was primarily due to a 9.0% fall in metal exports, exports of precision instruments also decreased slightly, by 0.4%. By contrast, electrical engineering/electronics exports rose nominally (+1.9%), as did mechanical engineering exports (+1.0%). Exports to all main markets were down. Specifically, exports to Asia, the USA and EU fell by 2.5%, 0.3% and 1.2% respectively, the 2.7% decrease in exports to Germany having a particularly significant impact.
Sentiment among Swissmem member companies continued to worsen in the second quarter of 2023, with 37% of members expecting orders from abroad to decline over the next twelve months. This is one third more than in the first quarter of the year. At the same time, the percentage of businesses expecting orders to rise has shrunk by a third. The purchasing managers’ index (PMI) for the industry underscores the increasingly gloomy prospects. In July 2023, the index was at a level indicating a severe downturn in almost all key markets, notably the eurozone and quite markedly in Germany, China and the USA.
However, there are considerable differences between the sub-sectors. Business remains good in the aerospace supply industry and in environmental and energy technology, while companies in the metalworking, automotive and textile machinery sectors find themselves under severe pressure. Since a lot of companies still have good levels of orders in hand, Swissmem is not expecting any significant headcount reductions, especially in the light of the perceptible shortage of skilled labour. Nevertheless, Swissmem Director Stefan Brupbacher is deeply concerned: “The next few months are likely to be difficult for the companies in Switzerland’s technology industry. In the best-case scenario, the high level of orders in hand will help bridge the downturn to some extent until new orders pick up again. However, the poor economic climate in many important markets means we cannot exclude the possibility of a major slump. In addition, the rise in interest rates is depressing companies’ willingness to invest.”
Ray of hope in India
The one positive outlier in the export statistics is India. First-half exports to this emerging market grew by 11.1% to half a billion Swiss francs. “Many companies want to reduce their reliance on China and are therefore starting to develop India as an alternative production location”, says Swissmem President Martin Hirzel. “And that is bolstering our machine exports”. However, positive growth in the Indian market will not be sufficient to compensate for the impending downturn. This will require better framework conditions overall, such as new free trade agreements with India, Thailand, Malaysia and Mercosur and an improved agreement with China.
However, improved framework conditions are most urgently required in relations with Europe, since the EU will remain Switzerland’s biggest trading partner in the decades to come. “Given the increasing tensions between the major global power blocks, the EU could actually become even more important for Switzerland”, Martin Hirzel emphasizes. “We therefore need to put relations with the EU on a new, stable footing. I expect the Federal Council to mandate negotiations by the end of the year and the negotiations themselves to conclude by mid-2024”.