Swiss machine builders see black in the longer term

With 77,800 employees, mechanical engineering is an important factor in Swiss industry. According to the new "A.T. Kearney Restructuring Score" study, this sector is facing trouble. "A good 60 percent of all 207 companies surveyed in Germany, Austria and Switzerland show symptoms of crisis. The mechanical engineering industry is particularly affected. Overall, 14 percent of all machine manufacturers are struggling with serious crisis symptoms. One in five mechanical engineering companies has found itself in a critical situation over the last few months," warns Nils Kuhlwein, Partner and Managing Director of A.T. Kearney Restructuring GmbH.

100,000 jobs lost

Indeed, Swiss machinery manufacturers have had little to laugh about in the recent past. The so-called franc shock of January 15, 2015, with the abolition of the fixed minimum exchange rate of CHF 1.20 to the euro, effectively put paid to all the plans of export-oriented machinery manufacturers. "The members of Swissmechanic were in a rage!" they recall today, not quite five years later. After all, the abolition of the minimum exchange rate was not only a hard blow for SMEs in the MEM industry, but also a serious threat to the entire Swiss manufacturing sector. As Swissmechanic calculates, over 100,000 jobs have been lost in the last ten years as a result of the strong Swiss franc.

Swiss machine builders get in shape

On the other hand, the new situation forced many industrial companies to rethink. They accepted the challenge and are now coping quite well with the currency situation. According to Swissmechanic, economic growth picked up again between 2015 and 2018 - but with strong pressure on margins. However, after the positive development of recent years, the Swiss MEM industry is losing momentum again in the current year. According to the Swissmechanic economic barometer, over 70% of MEM companies rate the current situation as tense. And according to A.T. Kearney, among the mechanical engineering companies, the proportion of companies with clear symptoms of crisis has increased from 9 to 14 percent. They are also rated significantly weaker compared to other areas of the automotive, industrial goods and services sectors. "The picture for automotive suppliers, on the other hand, is not yet quite so uniform. Although the restructuring score improved from 2.42 to 2.14 by July 2019, it has since deteriorated again. On the one hand, just under half of all the automotive suppliers analyzed exhibit crisis characteristics, while on the other hand the other half can still be considered healthy," Kuhlwein explains.

Substantial order volume still available

Many Swiss mechanical engineering companies, as well as suppliers for the automotive industry, for example, are still benefiting from orders from previous years and can therefore compensate for deteriorations in their financial data. Nevertheless, the industry is more susceptible than average to regional and global economic changes, such as Brexit or the trade dispute between the USA and China. The further intensification of climate discussions is also having a negative impact on automotive sales. In order to be able to counteract the trend, adjustments in the business model of all regional automotive suppliers are necessary to improve (financial) competitiveness, according to A.T. Kearney's conclusions from the study.

National Bank "doing a good job

Nils Kuhlwein from A.T. Kearney admits that the findings need to be viewed in a differentiated manner across the various sectors. "Some of the doomsday scenarios in the media still seem exaggerated at the moment, as the situation is not (yet) fully reflected in the capital market data. So one can say: signs of crisis yes - recession no." Swissmechanic is also not in a mood of alarm. "Thanks to the clearly communicated and steady monetary policy of the Swiss National Bank under the leadership of Thomas Jordan, calm has at least returned to the MEM sector on the currency front. The industry has a solid basis for efficient planning," the industry association announced via press release this week. Even though the strong franc is still extremely hurting the economy and putting pressure on margins, Swissmechanic is decidedly of the opinion that the SNB, under the leadership of Thomas Jordan, is doing the right thing by pursuing a monetary policy course that will not let the franc get any stronger. "The SNB is doing a very good job for our companies," Swissmechanic writes.

Sources: Swissmechanic, A.T. Kearney