SMEs in the MEM sector hit right in the heart by Corona
SMEs in the MEM sector are suffering a severe slump in demand in the wake of the Corona crisis, which is already having a noticeable impact on the finances of one in three companies in the form of liquidity problems. This is reported by the industry association Swissmechanic.
A recent survey by BAK Economics and the Swissmechanic association, in which more than 400 companies participated, shows how severely SMEs in the MEM sector have been affected by the Corona crisis. Despite some dramatic developments, however, most companies are confident that they will be able to successfully overcome the crisis.
SMEs in the MEM sector particularly hard hit
The Swiss MEM industry is one of those sectors that has been particularly hard hit by the negative consequences of the Corona pandemic. There was already a slowdown in growth in 2019. The inevitable cyclical downturn was exacerbated by an additional reluctance to invest caused by political uncertainties. The appreciation of the Swiss franc presented the MEM industries with further problems. The Corona crisis is therefore hitting the MEM industries in an already difficult phase.
A company survey conducted between April 6 and 24 by BAK Economics and Swissmechanic sheds light on the immediate impact of the Corona crisis on the SME sector in the MEM industries, as well as the measures that companies have taken in response to the crisis situation.
Corona pandemic hits SMEs on the supply and demand side
Throughout the first quarter, order intake and sales deteriorated again at the majority of companies. In the wake of the pandemic, order cancellations then occurred at almost one in two companies (45%). On the supply side, the Corona crisis is making itself felt at 42 percent of companies in the form of interruptions in the supply chain for the procurement of raw materials and semi-finished products. In addition, one in four companies reports staff absences due to illness, quarantine or care obligations.
SMEs in the MEM sector respond with cost savings
The financial impact of the crisis is already clear, according to the Swissmechanic survey. Around a third of companies (35%) reported liquidity problems. About one in three SMEs (34%) had applied for a state bridging loan, according to further survey results. The most important government support is short-time work compensation. Two out of three SMEs have registered for short-time work. For their part, companies are responding by cutting costs: 16 percent made layoffs, 72 percent imposed a hiring freeze, and 68 percent are responding by halting investments.
The order backlog of SMEs has deteriorated significantly
Capacity utilization at companies fell significantly in the first quarter, averaging 74 percent. The longer the economic crisis lasts, the thinner the air becomes for SMEs. At more than half of the companies (53%), the order backlog will not last a whole month. In January, the figure was still 41 percent. The average order backlog for all companies surveyed is currently 7.6 weeks, less than two months.
Majority of companies also expect order losses in the second half of 2020
Only one in five companies (21%) expects the phase of pandemic-related demand shortfalls to be over after just three months. The majority expect the lean period to last longer than one quarter. Around 40 percent of SMEs expect demand shortfalls to last for 4-6 months. Nearly one-third of companies (31%) estimate it will last 7-12 months. One in eleven companies (9%) fear order losses for more than 1 year. On average, companies expect order losses to last until about the end of 2020 (7.5 months).
Majority of companies confident of overcoming the Corona crisis
The majority of SMEs in the MEM sector are confident of mastering the crisis. Only a minority of companies see their existence in acute danger. Thus, 6 percent of companies report a serious risk of bankruptcy, while 2 percent of all companies state that they are planning or have already completed a plant closure as a result of the Corona crisis.
Even if the crisis is overcome without a wave of bankruptcies, its effects will be felt for some time to come. Many SMEs will have to struggle even longer to pay off the increased debt burden. The financial scope for being able to make the necessary investments in digital transformation has become even narrower with the Corona crisis. This could have a negative impact on the growth potential of the industry in the long term.
Source and further information: Swissmechanic
