Swiss factory activity contracts more than expected

The Swiss procure.ch and Credit Suisse Manufacturing PMI fell to 48.8 in July 2025 from 49.6 in the previous month, worse than market expectations of 49.9. This marked the 31st consecutive month the index remained below the 50-point threshold that separates growth from contraction, highlighting persistent weakness in the Swiss industrial sector amid subdued global demand and rising trade tensions.

The latest decline was primarily driven by notable contractions in key sub-indices: production slipped slightly by 0.1 points to 49.6, suggesting a marginal slowdown in factory output; order backlogs dropped sharply by 6.5 points to 43.9, reflecting weaker pipelines of future work; and purchasing volumes declined 1.1 points to 43.0, underscoring firms' reluctance to stock up amid demand uncertainty.

Still, some signs of stabilization emerged. Input price pressures showed modest signs of firming, with purchasing prices rising by 3.6 points to 50.7, entering expansion territory for the first time since March. Delivery times also lengthened (up 2.8 points to 59.2), which in typical economic conditions might signal supply bottlenecks, but in the current context is more likely a reflection of logistical friction due to renewed trade restrictions.

Meanwhile, slight improvements were observed in inventories, both for purchased stocks (up 5.4 points to 45.4) and finished goods (up 6 points to 48.7), while employment also edged up to 48.9, though it remains below the neutral mark.

A key concern for manufacturers is the growing trend toward protectionism. According to a joint survey by procure.ch and UBS, nearly half of all respondents anticipate a rise in protectionist trade measures over the next year, while about one-third have already experienced an increase in such policies over the past 12 months.

These trade dynamics, coupled with domestic pressures such as weak inflation and soft consumer demand, are fueling fears of a prolonged downturn in the manufacturing sector.

Going forward, analysts warn that unless there is a meaningful rebound in external demand or a decisive stimulus response, Switzerland's industrial activity may remain subdued through the second half of 2025. The Swiss National Bank's policy stance, particularly regarding interest rates and currency interventions, will also be closely watched for clues on efforts to support the export-reliant economy.