Tech industry: subdued outlook for 2023

In the Swiss tech industry[1] In the first quarter of 2023, sales increased by +4.9 percent year-on-year. This increase in sales was significantly more pronounced at large companies than at SMEs. Order intake fell by -4.8 percent in the first quarter compared with the prior-year quarter. Overall, the level of order backlogs is still high, as evidenced by the good capacity utilization in companies of 89.5 percent. This is above the long-term average of 86.2 percent.

Rising exports to all major markets

Exports of goods by the Swiss tech industry increased by +2.8 percent year-on-year in the first quarter of 2023, reaching a value of CHF 18.4 billion. Exports to all major markets increased. Specifically, they increased by +3.4 percent to the USA, +3.0 percent to Asia and +2.9 percent to the EU. There were differences in the development of exports to the most important product groups. While exports increased in mechanical engineering (+6.0%), electrical engineering / electronics (+5.4%) and precision instruments (+1.2%), they decreased significantly in metals (-5.7%). The latter shows how strongly the companies operating in this sector are negatively affected by the continued high energy prices as well as subsidies abroad.

High energy and raw material costs dampen earnings development

The very good course of business last year unfortunately did not lead to a significant improvement in the earnings situation at companies in the tech industry. As before, 18 percent of companies report a negative EBIT margin and 27 percent report a positive but insufficient EBIT margin of less than 5 percent. "Increased raw material and energy prices due to the Ukraine war, as well as ongoing problems in certain areas of the supply chains, have put margins under severe pressure," says Stefan Brupbacher, Director of Swissmem. "In order to preserve companies' ability to invest and innovate, they must not be burdened with additional costs," emphasizes Stefan Brupbacher. It is true that the general business situation in most companies in the Swiss tech industry is currently still good. However, the differences between the sub-branches are considerable. In particular, energy-intensive companies, SMEs and, increasingly, mechanical engineering are under pressure. In contrast, companies offering products and services related to the transformation of the energy supply system are enjoying good business.

Subdued outlook for the tech industry

The outlook for the coming months does not allow for much optimism. "Companies are currently feeding off the very good order intake from last year," comments Stefan Brupbacher. "The decline in incoming orders in the first quarter and the level of the Purchasing Managers' Index PMI, which is currently below the growth threshold in all major markets, point to a significant slowdown." In parallel, there are significant risks. Recent interest rate moves by major central banks are likely to further dampen economic activity and thus demand for tech industry products. In addition, the energy supply situation remains tight. However, major risks for the global economy also lie in a further escalation of the war in Ukraine and an intensification of tensions between China and the USA.

Swissmem supports the net zero target 2050

In addition to the tense geopolitical situation, climate change remains a major challenge in the long term. "Technological innovations are the only way to limit climate change while maintaining prosperity in Switzerland," says Martin Hirzel, President of Swissmem. "Net zero is the goal. And the tech industry is delivering the solutions to achieve that goal. That's why the Swissmem board has decided to vote Yes to the Climate and Innovation Act KIG," Martin Hirzel emphasizes. At the same time, Swissmem also supports the OECD minimum tax. Both bills will be put to the vote on June 18, 2023.

[1] The tech industry includes the machinery, electrical and metal industries, as well as companies active in other pioneering technology areas, such as sensors, photonics, robotics, additive manufacturing and industrial ICT.

Source: Swissmem