Business Climate Index: Corona crisis hits MEM sector hard

The quarterly survey conducted in July by Swissmechanic and BAK Economics among around 300 SMEs in the MEM sector shows that the crisis in the MEM sector is increasingly shifting from the supply side to the demand side. Although some companies were still affected by supply chain interruptions (19%) and staff shortages (12%) in July, the number of these has more than halved compared with April.

Business climate index points to severe recession

The Business Climate Index shows how hard SMEs in the MEM sector have been hit by the Corona crisis: 27 percent of companies have had to make redundancies, 63 percent have reduced investment spending and even more have registered for short-time working. However, there are not only negative signals for the future development. For example, new orders in the third quarter are not expected to fall as sharply as in the second. "The Corona crisis has plunged the Swiss economy into a severe recession, with the MEM sector slumping even more than the economy as a whole," Swissmechanic Director Jürg Marti notes, adding, "The main problem is the lack of orders."

Lack of orders continues to accentuate

The percentage of companies for which a lack of orders is the main problem rose to 89 percent in July (April 63%). Just under half are gearing up for the lack of orders to last more than six months. The background is that end customers in the MEM sector are only making the most necessary investments due to the global economic slump, the high level of uncertainty and the increased need for liquidity.

This weakness in demand - fueled by the strength of the Swiss franc - is also reflected in the dramatic 25 percent slump in exports across the entire MEM goods spectrum in the second quarter of 2020. Producer prices also declined in the same period, but only moderately.

Hiring freeze and short-time working

The industry is taking strong countermeasures. Around 70 percent of companies have imposed a hiring freeze and applied for short-time working. In the second quarter, the industry average was 29 percent short-time work, and this figure is expected to rise to 34 percent in the third quarter. The fact that the Federal Council decided in mid-August to extend enforcement relief for short-time work compensation until the end of the year is good news for the cantons and, of course, for the beleaguered economy. Compared with April (16%), the proportion of companies stating that they are making redundancies has also increased (July 27%). However, the MEM companies are not only cutting back on staff; two-thirds are also cutting back on investments.

Behavior positive sign

Amidst the bad news, however, there are also cautiously positive signs. Marti: "The SMEs surveyed expect a slight slowdown in the slump in orders for the third quarter. In addition, fewer companies report liquidity problems than in April, and still only a small minority (5%) see a serious risk of bankruptcy." The majority of SMEs surveyed are also sticking to planned R&D projects and further training.

Source: Swissmechanic