MEM industries: Good business situation - but for how long?

According to Swissmem, incoming orders in the Swiss MEM industries increased by 10.1 percent year-on-year in the first half of 2022. After six quarters of positive growth rates, the order volume is now 30 percent above the pre-crisis level (Q4/2019), the industry umbrella organization reports. However, according to Swissmem, growth momentum slowed in the second quarter of 2022. A similar picture emerges for sales. These increased by 12.1 percent compared to the first half of 2021. Due to the high order backlog, sales are also likely to increase further in the second half of the year. Both SMEs and large companies are benefiting from this positive business development.

MEM industry with growing exports and high capacity utilization

The half-yearly balance sheet for the MEM industries also records high capacity utilization in companies, reaching a high 90.3 percent in the second quarter of 2022. According to the latest KOF survey, it fell to 89.5 percent in July. However, it remains well above the long-term average of 86.2 percent. In terms of employment, half-year figures are not yet available. In the first quarter of 2022, 320,900 people were working in the MEM sector. This is 2.4 percent more than in the same quarter of the previous year. In addition, the number of vacancies in Swissmem member companies has risen by 32 percent within a year.

Exports of goods by the MEM industries reached a value of CHF 36.5 billion in the first half of 2022. This value is +9.0 percent higher than in the same period of the previous year. The MEM sector exported more to all main markets (Asia +14.1%, EU +8.5% / USA +7.5%). All product groups increased their exports. Exports in metals rose by +13.3%, in electrical engineering/electronics by +8.9%, in precision instruments by +7.6% and in mechanical engineering by +7.4%.

Dark clouds on the horizon

Stefan Brupbacher, Director of Swissmem, says: "The development of orders and sales in our industry is encouraging. However, this is only half the truth. Delivery problems and, above all, the sharp rise in energy and raw material prices have significantly increased production costs. By no means all companies can quickly pass on the higher costs to their customers. The exploding energy costs in particular are threatening the very existence of some companies."

The mood among Swissmem member companies has generally clouded over. For the coming twelve months, 30 percent of entrepreneurs expect orders from abroad to fall. This is 12 percentage points more than in the survey of the first quarter of 2022, while the proportion of those expecting higher orders has fallen from 35 percent to 29 percent. The level of the Purchasing Managers' Index (PMI) for industry reflects this gloom. In the eurozone, the most important market for Swiss industry, the PMI fell below the growth threshold in July 2022 for the first time since mid-2020.

Great uncertainty in energy supply

The MEM industries are concerned about the threat of an energy shortage. For its production processes, the industry is vitally dependent on an uninterrupted energy supply. Only some of the MEM companies are in a position to absorb any interruptions with flexible production planning. Companies whose production processes require high temperatures, on the other hand, are absolutely dependent on an uninterrupted supply. If this were to disappear, they would have to cease production completely. Martin Hirzel, President of Swissmem, warns: "An electricity or gas shortage must be prevented at all costs. It would endanger companies and their jobs in industry." Therefore, industrial companies that are technically dependent on an uninterrupted energy supply must be exempt from any gas/electricity rationing.

That the federal government triesSwissmem takes a positive view of the proposal to develop considerable reserve capacities for electricity production already this winter. However, the association believes that this will not be sufficient and therefore proposes the following measures:

1. Start saving energy now. What is needed here is a national alliance between companies, the administration and the population. The temperature in homes, offices, production halls, museums and shopping centers may only be a maximum of 19 degrees during the heating period. The associated loss of comfort is acceptable if it means that companies and their jobs can be preserved.
2. Solutions for threatened companies: The skyrocketing electricity prices are an existential threat for many production companies. The companies got into this extraordinary situation through no fault of their own. Electricity producers, the public sector as their owner and industrial consumers must therefore work together to find solutions to defuse the situation.
3. Switch operation of dual fuel systems from gas to fuel oil. Swissmem estimates that this could save up to 20 percent of annual gas consumption. Companies that have therefore exceeded their target agreements for reducing CO₂-emissions, should not suffer any disadvantages, according to the intention of the Federal Council. This must be implemented quickly. However, operation with heating oil can cause additional costs. Further measures are therefore needed to exploit the full savings potential.
4. Provide targeted incentives. In order to be able to increase electricity production in the short term, incentives are needed for owners of reserve power plants and emergency generators. Incentives that motivate energy-intensive companies to temporarily forego their electricity consumption are just as important.
5. Production at night or on weekends. In the event of a shortage, peaks in consumption of electricity and gas must be broken. Industry can make a contribution by shifting production to nights or Sundays. This requires a simple and unbureaucratic licensing practice on the part of the authorities.

Furthermore, according to Swissmem, Switzerland must not fail to ensure a secure and sustainable energy supply in the medium and long term. The umbrella organization of the Swiss MEM industries is therefore calling for an adjustment of the Energy Strategy 2050. "The current situation clearly shows that it is not possible to phase out nuclear and fossil energy sources at the same time. The federal government's intention to build two to three gas-fired power plants with a total capacity of up to 1000 megawatts by 2025 is a step in the right direction," Swissmem writes in this regard. In addition, there is a need for a streamlining of the approval procedures. Martin Hirzel, President of Swissmem, demands: "The 15 hydropower projects that the Round Table identified last December must be realized as quickly as possible. Switzerland can no longer afford years of delays in power plant projects." With a bill that restricts the possibilities for objections to these projects and streamlines the procedures, the people could vote on them in a possible referendum as early as the end of 2023.

Source: Swissmem