Globalization puts Swiss industry under pressure
The Swiss trade surplus has risen steadily since 2008 – despite the strong and sometimes dramatic appreciation of the Swiss franc. The pharmaceutical industry in particular is poised to benefit from the boom in global trade and growing globalization. Swiss industry, on the other hand, has suffered. And the forecast for the MEM sector remains mixed.
Swiss exports grow in the wake of globalization
Globalization has sharply transformed the economy and the world at a breakneck pace. This is reflected in Swiss exports, which have more than doubled since 1998, increasing 122 percent. And trade from Switzerland is becoming more and more global every year. Before the turn of the millennium, 44 percent of all exports went to our four neighboring countries. Today, it's only 32 percent. Destinations such as Canada, China, Russia, and the US – who has become Switzerland's second largest trading partner – have grown increasingly important.
Swiss industry exports losing importance
Since 1998, the pharmaceutical industry has greatly benefited from growth in the US and China. The share of pharmaceutical exports in relation to all Swiss exports has nearly tripled since then and now stands at almost 40 percent. On the other hand, the chemical sector and, above all, the mechanical, electrical and metal (MEM) industry, which has a strong presence in the European market, have experienced significant losses. This has consequences for the labor market. In 1998, almost 8 percent of all Swiss workers were employed in the MEM sector. Today, less than 6 percent are.
Globalization challenges the Swiss MEM industry
One reason for this development is that internationally oriented Swiss companies have been forced to adjust to increasingly global competitive pressures. The MEM industry in particular, which positions itself on the market mainly through high quality, is suffering from short-term fluctuations in demand. According to calculations by Credit Suisse, the development of MEM exports reacts sensitively to changes in GDP growth in buyer countries. The same applies to the watch industry.
The situation is a bit different for pharmaceutical exports. They are resistant to short-term economic fluctuations in buyer countries. Over the long term, increasing economic output in other countries tends to lead to more imports of Swiss pharmaceuticals as the quality of health care rises with increasing prosperity and GDP.
A strong franc is problematic for Swiss industry in the long term
Looking at exchange rates paints a similar picture. Pharmaceutical exports are robust against short-term foreign exchange developments. The same applies to exports in the watch and chemical industries. However, the situation is somewhat more difficult for the MEM industry. The structural appreciation of the Swiss franc negatively influences the long-term exports of this sector and has short-term impacts.
Overall, the stable development of pharmaceutical exports braces total exports even in volatile times and during economic downturns abroad. But this dependency also poses risks. Healthcare reforms in the US, the leading export market, or decreased demand from the emerging markets could adversely affect the situation in the future. It is therefore all the more important that Swiss exports become further regionally diversified whenever possible. Service exports could reduce the dominance of the goods exports, not least in the pharmaceutical sector.