Market insight Switzerland: Industry is working its way out of the crisis
Significantly rising sales, incoming orders and exports - the Swiss mechanical engineering, electrical and metal industries (MEM) can look back on a successful year 2017. However, the weak profitability of companies is a cause for concern.
In 2017, sales increased by 9.4 % compared to the previous year; incoming orders increased by 7.5 % and exports of goods by 5.5 %. Only the earnings situation is still unsatisfactory for 44% of MEM companies, according to the Swissmem association. Business expectations, the more favourable exchange rate of the Swiss franc against the euro and the good economic situation in important markets point to continued positive business development in 2018. Both large companies and small and medium sized enterprises (SMEs) benefited from the positive development in orders and sales.
The high level of incoming orders in recent months has had an impact on capacity utilisation in the plants. According to the Economic Research Office of the Swiss Federal Institute of Technology Zurich (Kof), it was 90.6% in January 2018, which is well above the long-term average of 86.4%. The number of employees in the MEM industries also increased to 322,100, which represents an increase of 4,500 jobs compared to 2016.
Growing export figures
Exports of goods by the MEM industries grew by 5.5% in 2017, reaching a value of CHF 66.7 billion. All sales regions developed positively. Exports to the EU increased by 5.9% and exports to Asia by 3.4%. Exports to the USA recorded the highest growth (+7.4%). The positive export development covered all important product groups. Compared to the previous year, exports of metals grew by 12.6%, electrical engineering/electronics by 4.7%, precision instruments by 4.3% and mechanical engineering by 2.3%.
Overall, the situation of the Swiss MEM industry is better than it has been for a long time. If the recently improved exchange rate situation against the euro and the good economic situation in the most important sales markets continue, the association expects the positive development in the MEM sector to continue in the coming months. Companies in the MEM industries are optimistic in this respect. According to the latest Swissmem survey, 53% of entrepreneurs expect orders from abroad to grow in 2018. Only 10% fear a decline. This optimism is shared by both large companies and SMEs.
Weak earnings the industry
The positive picture is only clouded by the still unsatisfactory earnings situation. The main reason for this is that the weakening of the Swiss franc against the euro and thus the improvement in margins did not begin until mid-2017. The latest Swissmem survey showed that 15 % of companies at EBIT level were in the red over the entire past year. Another 29% of companies achieved an insufficient margin of between 0% and 5% in 2017. Overall, the earnings situation is still unsatisfactory for 44% of MEM companies. It has improved slightly compared to 2016.
According to the current survey, 21% of companies posted losses in 2016 and a further 30% of companies kept their EBIT margin below 5%. However, the survey results show that an upswing of a few months is not sufficient to compensate for the sometimes massive margin and asset losses of recent years. According to the association, the MEM industry now needs a longer growth phase with significantly better margins in order to be able to invest more in the future again.
The export figures show the great importance of the EU market. The EU's export share has risen from 57.7 % to 59.6 % since 2015 despite the strength of the Swiss franc. In relative terms, exports to the USA grew more strongly in 2017 (7.4% compared with 5.9%). In absolute figures, however, export growth to the EU is 3.7 times higher (export growth EU: CHF 2.222 billion, export growth USA: CHF 0.599 billion). Although other markets are gaining importance for the MEM industry in relative terms, the EU internal market remains the most important sales market in the long term. For this reason, Swissmem is in favour of Switzerland putting its relations with the EU on a new, sustainable basis with a framework agreement. And for the same reason Swissmem will fight the dismissal initiative of the Swiss People's Party (SVP). It calls into question today's almost non-discriminatory access to the European internal market.
Jean-Philippe Kohl, Swissmem Director ad interim, is optimistic about the outlook for the Swiss MEM industries. “The new orders index has remained at a high level since the middle of 2017. Sales and earnings should therefore increase further this year. This is a necessary development in order to make up for the massive decline in margins and the intrinsic depreciation of recent years.”
This article was first published on www.etmm-online.com.