March 1, 2023
The performance of the Swiss technology industry (mechanical and electrical engineering and related technology sectors) has improved in the past year. Compared with 2021, sales were up by 9.4%, exports by 5.6 %, and new orders received by 2.4 %. This partially offset the slump in orders experienced in the third quarter of 2022. For the current year, businesses’ expectations are cautiously optimistic. Having said that, there are significant uncertainties, and cost pressure is high. High inflation worldwide will result in further interest rate moves by central banks, which is likely to cool economic activity worldwide and dampen demand for capital goods. Moreover, the risk of energy shortages next winter is still with us. The biggest risks, however, lie in a further escalation of the war in Ukraine and exacerbation of the tensions between China and the USA. The challenges for industry primarily lie with the skills shortage and access to world markets. Swissmem is calling for our relationship with the EU to be rapidly placed on a new footing and for further free trade agreements to be concluded.
In 2022, sales in the Swiss technology industry1 were up by 9.4 % year-on-year. In the fourth quarter, the year-on-year increase amounted to 8.8 %. With this, the industry posted its seventh consecutive quarter of sales growth. Both SMEs and large firms benefited from this upturn. New orders also rose by 2.4 % compared to 2021. In the fourth quarter, they were up 2.4 % year-on-year. This is great news, as new orders from abroad had tumbled by over 20 % year-on-year in the third quarter of 2022. In connection with global recession worries, Swissmem feared there would be a sharp downturn in the industry. This failed to materialise, for either SMEs or large firms. Rather, capacity utilisation in the fourth quarter stood at a high 89.6 % and thus markedly above the long-term average of 86.2 %. It is therefore no surprise that the number of people employed in the technology industry has also continued to increase, rising to 326500 in the fourth quarter of 2022 – 2.7 % higher than in the same period in the previous year.
This positive array of numbers cannot hide the fact that all businesses are taking a hit from rising costs for energy, raw materials and labour. In particular, energy-intensive businesses are being massively disadvantaged by the industrial policy measures of the EU states in the market. Their sites in Switzerland are at risk.
1 The technology industry includes the mechanical and electrical engineering industries as well as companies in other pioneering technology sectors such as sensors, photonics, robotics, additive manufacturing and industrial ICT.
Higher exports in all product categories
In 2022, goods exports by the technology industry rose by 5.6% year-on-year to CHF 72.3 billion. All key markets followed a positive trend. Exports to Asia were up by 11.7 %, to the USA by 7.9 %, and to the EU by 4.3 %. Exports in all key product categories increased. Exports of metals increased by 8.5 % year-on-year, electrical and electronics by 7.4 %, mechanical engineering by 5.4 % and precision instruments by 4.2 %.
Significant risks and uncertainties
With regard to the business figures for 2022, Swissmem Director Stefan Brupbacher commented: “Overall, the situation of the Swiss technology industry is better than feared. After the third quarter of 2022, we were expecting a downturn. So far, this has not yet materialized.” Among other things, he ascribes the good sales figures to the fact that companies were able to work through and deliver the high order backlog. This was made possible by the fact that, with the exception of certain key and electronic components, the supply chain problems have eased appreciably. “I am cautiously optimistic for the current financial year”, he adds. This is consistent with Swissmem members’ assessments. According to the latest survey, a third of members are anticipating higher new orders from abroad in the coming twelve months. Growth momentum is expected to come primarily from the USA and the non-European markets. Of those surveyed, 39 % thought that the level of orders would remain the same, while 28 % expected them to fall. Nevertheless, substantial risks and uncertainties still exist. “In order to further reduce inflation, more interest rate moves by central banks seem likely. This will cool the economy and consequently demand for our products. In addition, the risk of energy shortages next winter is still present”, explains Stefan Brupbacher. The biggest risks for the global economy, however, lie in a further escalation of the war in Ukraine and an exacerbation of the tensions between China and the USA.
Challenges relating to the skills shortage and access to world markets
At home, the skills shortage represents the biggest risk for the technology industry. A large proportion of Swissmem member companies reported difficulties in finding suitable specialist employees. To counter this problem, Swissmem is investing extensively in reforming and marketing industry careers and promoting MINT professions. However, Swissmem feels that the public sector also bears some responsibility here. In recent years, it has created a massive number of new jobs. The administration must not become any more bloated, as it is businesses which finance the state and not the other way round.
The Swiss technology industry exports almost 80 % of its products. However, unobstructed access to global markets is increasingly becoming a challenge. In the international context, protectionism and competition-distorting subsidies programmes are on the increase. Examples of this are the “Inflation Reduction Act” in the USA, the “Green Deal” in the EU, or China’s “Dual Circulation Strategy”. Martin Hirzel, President of Swissmem, is concerned: “This new protectionism represents a serious threat to the technology industry. Our businesses are experiencing significant competitive disadvantages in the face of foreign competitors which are subsidized and protected by tariffs.” To counter this, Switzerland needs to make it easier for businesses to access markets worldwide, for example by at long last finalizing and ratifying the free trade agreement with Mercosur, and closing out the negotiations with India. Although a free trade agreement with China is already in place, most high-tech machines are not included in the customs exemption. Here, talks aimed towards expanding the agreement need to be initiated. “But the most urgent task is to place our bilateral relationship with the EU – by far our biggest trade partner – on a new footing. In an increasingly tripolar world, this is a matter of common sense”, emphasizes Hirzel. This will allow Switzerland to guarantee its access to the European internal market, create the necessary conditions for full participation in European collaborative research programmes and, via an electricity agreement, reduce the risk of power supply shortages, which will be higher from 2025 onwards. It will also ensure that businesses can recruit in the EU for occupations where there are shortages without large amounts of red tape. “It is high time we made progress on Europe. The goal must be to bring negotiations to a close by spring 2024”, stresses Hirzel.