UniCredit Bank Austria Purchasing Managers’ Index in March:
End of the boom dampens growth forecasts for Austria

  • The UniCredit Bank Austria Purchasing Managers’ Index drops to 50.0 points in March and signals the end of the three-year growth period for the domestic industry
  • The reduction of the order backlog still facilitated a moderate production expansion in March despite the strong decline in new orders
  • Lowest growth in employment in three years
  • Falling demand for raw materials slows the price increase in purchasing; however, the companies’ limited price implementation power fails to improve profits
  • GDP forecast for 2019 reduced to 1.4 percent, economic growth of 1.3 percent also expected below potential in 2020

The slowdown of the Austrian industrial boom also continues in March. “The UniCredit Bank Austria Purchasing Managers’ Index dropped to 50.0 points in March. The indicator fails to exceed the growth threshold of 50 points for the first time in 48 months and therefore signals an end of the so far longest boom period of Austrian industry since the initial calculation more than 20 years ago”, said Stefan Bruckbauer, UniCredit Bank Austria chief economist. Since the economic peak at the turn of the year 2017/18, reflected by an all-time high of the UniCredit Bank Austria Purchasing Managers’ Index of 64.3 points, the indicator score now has continued to fall and only indicates a stagnation of the domestic industry for March. 

A more and more demanding international environment is behind the downturn of the Austrian boom in industry in the last 15 months. “A weakness of the processing industry is manifesting in Europe particularly, fuelled by trade conflicts, the uncertainty around Brexit and the continuing problems of the automotive industry. The Purchasing Managers’ Index for the eurozone industry dropped significantly to 47.7 points in March, mostly due to the decline of the German indicator to only 44.7 points. But the unfavorable conditions in other large EU countries such as France and Italy also impact on the export-oriented Austrian industry”, said Bruckbauer. 

The domestic industry is still faring relatively well despite the more and more unfavourable export environment when compared internationally. However, the negative effects from abroad can no longer be compensated. “Order development slumped significantly for the first time in March. Nevertheless, Austrian companies still expanded production further and even created new jobs, This was, however, exclusively supported by the strong reduction of order backlogs. While the upward price trend slowed noticeably, the companies are preparing for the growing economic challenges with increased caution in purchasing and inventory management”, Bruckbauer explained the most important results of the monthly survey.  

New orders slumped significantly
New export orders of the Austrian industrial companies have fallen in the last six months and even more strongly since the start of 2019. “While so far enough new domestic orders could be secured to maintain new business at least at a stable level despite the drop in new export orders, domestic demand was no longer sufficient in March to prevent a strong slump in new business overall. The index of new orders dropped to 46.1 points indicating the strongest decline in 4 years”, said Walter Pudschedl, UniCredit Bank Austria economist. 

Austrian companies still increased production output despite falling demand. However, the output expansion was as low as most recently in April 2015, as it was facilitated exclusively by existing order backlogs accumulated during the boom period. Order backlogs decreased significantly in March for the first time in about four years. In combination with declining new business, this has resulted in a reduction of delivery periods for the first time in six years. 

Employment growth is decreasing
Domestic companies yet again created new jobs due the renewed production expansion in March. Employment growth has slowed down during the course of last year and more significantly at the start of 2019. The employment index fell to 53.3 points in March “The strong employment growth in manufacturing in Austria of 3 percent on average in 2018 will not be achieved in the current year. However, an increase of almost 2 percent means that the drop in the average unemployment rate towards 3.5 percent will continue in 2019. The unemployment rate in the sector was only 3.8 percent in 

2018”, said Pudschedl. This means that the expected unemployment rate of 7.3 percent in goods manufacturing will continue to be significantly lower than in the economy overall. 

Industrial slowdown is set to continue
A number of details of the monthly survey amongst domestic production companies indicate the continued slowdown in the Austrian industrial boom for the time being. The uncertainty of domestic companies in the weakening demand environment is more pronounced. Purchasing is running increasingly on sight, which resulted in a reduction in purchases in March as compared to the previous month for the first time since the start of 2016. Nevertheless, the companies increased the stocks of purchases.. The companies reduced the stocks of finished goods as a deliberate strategy to contain costs. 

The upward price trend slowed in light of the deteriorating demand situation. The primary and raw materials prices increased only at the lowest rate in two and a half years, predominantly restrained by low prices for steel and paper products. The increase in 0utput prices also dropped. As the companies’ price implementation power is highly limited due to the strong competition in the deteriorating demand environment, cost saving facilitated almost no improvement of profits. The decline to the growth threshold of 50 points in March means that the longest boom period in the history of the UniCredit Bank Austria Purchasing Managers’ Index has come to an end. “A further deterioration of the indicator below the growth threshold has to be expected in the coming months. This underlines the once again worse new order-stocks-index ratio which has indicated for four months by now that stocks of finished goods are sufficient to manage the current incoming orders even with lower production output”, said Pudschedl. In contrast, it is estimated that the business prospects of domestic companies are slightly more optimistic for the year. The relevant index increased to 53.3 points in March. 

GDP forecast 2019 lowered to 1.4 percent
Since the second half of 2018, the economic boom in Austria has been slowing. Weaker global demand put a damper on the export dynamics and, as a result, on the growth of the domestic industry. The drop of the UniCredit Bank Austria Purchasing Managers’ Index to only 50 points in March, underpinned by the continuing deterioration of the export environment, means that a trend reversal is not expected for the time being. Domestic demand maintained the Austrian economy on a growth trajectory in the first quarter of 2019; however, it is likely that the GDP increase in a single quarter dropped below the 2 percent mark as compared to the previous year for the first time in two and a half years. 

A significantly lower increase than in the previous year is expected even if at least some of the existing uncertainties at European level, such as Brexit for example, should have decreased by mid-2019 and economic growth in the second half of the year should again be stronger than in the first half of the year. “In light of the economic slowdown at the start of the year, we now are expecting a more significant decline in economic growth of 1.4 percent for 2019 overall as compared to 2.7 percent in the previous year. The expected cooldown of the US economy in 2020 will add a further disruptive factor so that the GDP increase in Austria should only amount to 1.3 percent”, concluded Bruckbauer. 

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Enquiries: UniCredit Bank Austria Economics & Market Analysis Austria 
                 Walter Pudschedl, T.: +43 (0) 5 05 05-41957;
                 Email: walter.pudschedl@unicreditgroup.at