The lull continues

Whilst the Swiss economy as a whole is showing tentative signs of recovery, our sector is taking a dive. The situation is made worse by rising costs: due to the war in Iran and the blockade of the Strait of Hormuz, raw material prices are only slowly recovering from the highs reached this spring. Consequently, the price level for materials crucial to the sector, such as polyester and cotton, remains above average.

This situation is keeping international business particularly on its toes: the manufacturing sector, in particular, is facing a marked decline in demand from abroad. This applies to both the past and the coming months.

Manufacturing sector – new record low

Although the majority in the textile industry describe the current business situation as neutral, the picture changes when other factors are taken into account: order intake is lower than in the previous month and the order book from abroad is also weakening. At just under 74 per cent, average capacity utilisation is eight per cent lower than for the industry as a whole, reaching a new low.

Wholesale

Textile wholesale has grown compared with the previous year. However, the positive trend seen at the start of the year has since given way to a sideways movement at a low level. The majority of companies surveyed remain dissatisfied with the business situation.

Retail – slight upturn

Only the clothing retail sector has continued its recovery. Following a slump in late spring, the business situation is showing a slight improvement for the first time in several years. However, as long as the impact of the hot summer on demand remains uncertain, any positive news should be treated with caution.

The business situation reflects the company’s overall economic condition. Respondents answer the question: ‘We currently assess the business situation as good, satisfactory or poor overall.’

The companies’ expectations mentioned below are based on various questions regarding the expected business situation, order book or turnover over the next three to six months.

Here, too, there are three possible answers (‘better’, ‘neutral’ and ‘worse’). As the wording of the questions varies slightly between sectors, a direct comparison between sectors is sometimes inaccurate. However, the chart shows the trends for the coming months, which help in making an assessment.

For the two indicators, the seasonally adjusted net balance of positive and negative responses is reported. This reflects the trend in developments. In practice, the net balances show a high correlation with the actual growth rates of the real indicators. The figures for positive and negative responses (percentages in the text) are not seasonally adjusted (source: KOF ETHZ).

Foreign trade – a focus on individual markets

Foreign trade continued to suffer for the most part in the past quarter. Only clothing imports rose by just over two per cent. By contrast, exports of clothing and textiles fell, in some cases significantly.

Demand for textiles declined particularly sharply in the Asian region. In the People’s Republic of China alone – the most important market – the decline amounted to almost 30 per cent.

Fabrics: a major cause for concern

There is a ray of hope on the European market: Germany is the most important buyer in the textile sector and, for the first time in several quarters, has once again increased its demand for textiles. This is a promising turnaround, even if the EU as a whole remains rather weak.

Among the product groups, woven fabrics remain the biggest cause for concern, as they have fallen by a third compared with the previous year, marking the sharpest decline. On the import side, technical textiles saw growth of just over five per cent.

Clothing exports, adjusted for returns, have seen strong growth since the turn of the year. This is due to fewer returns being recorded, particularly in trade with Germany. The background to this is a system change in customs declarations, which has led to various declarations being processed incorrectly. This situation should stabilise in the coming months. However, comparisons with the previous year’s figures are only possible to a limited extent.

Labour market situation

The unemployment rate in the manufacturing sector fell back to 3.1 per cent following a rise in the previous year.

The textile wholesale sector remained stable compared with the previous year. Employment is expected to remain steady in the coming months as well.

Outlook and expectations

The clouds on the horizon for the coming months are likely to dissipate somewhat. The Swiss economy as a whole, the textile wholesale sector and the clothing retail sector are all anticipating an improvement in conditions. However, caution is warranted, particularly in the latter sector, as the volatile months of the past have shown.

Production and demand are causing problems

The textile manufacturing industry is taking a decidedly gloomy view of the coming months. It anticipates poor production and low purchasing volumes, particularly with regard to exports. The companies surveyed also cite falling demand as the main reason for the bleak outlook.

Cooperation must be strengthened

For several quarters now, companies have been struggling with the difficult economic situation, which is reflected in low demand. Whilst positive developments are becoming apparent once again – such as the slow growth in demand from Germany – the situation remains challenging. For this reason, the economic framework conditions in Switzerland and the EU must be improved once more.

A return to pragmatic politics

Going it alone – as can currently be observed with the EU Packaging Regulation or Switzerland’s European policy – is damaging to the economy. Political decision-makers should now return to pragmatic policy-making. For instance, by supporting the free trade agreement with Mercosur, which is currently being blocked by vested interests in Parliament, or by modernising – as has recently been done – the free trade agreement between Switzerland and China.