UniCredit Bank Austria Purchasing Managers’ Index in May:
Austrian industry still on the decline during May
- UniCredit Bank Austria Purchasing Managers’ Index drops once more: The indicator is below the 50-point growth threshold for the second consecutive month, currently standing at 48.3 for May
- Continued decline in new business results in reduced production output
- Lowest rate of employment growth for three years
- Oil price leads to increased purchasing costs
- Industrial companies’ production expectations for the next 12 months have fallen below the growth threshold for the first time in four years
Industrial activity in Austria is continuing to slow after reaching its peak at the turn of the year 2017/18. “The UniCredit Bank Austria Purchasing Managers’ Index fell to 48.3 points in May. After a four-year upturn, the indicator is now below the 50-point growth threshold for the second consecutive month,” reports UniCredit Bank Austria Chief Economist Stefan Bruckbauer, adding: “However, the Austrian industry is still in a relatively good shape by European standards. The provisional Purchasing Managers’ Index for the eurozone is below the Austrian level after dropping further to 47.7 points.” Recording just 44.3 points, the German Purchasing Managers’ Index was a particular burden on the European result, which is also impacted by slight downturns in Italy and Spain. The French index, on the other hand, surpassed the growth threshold once more in May.
The mostly unfavourable conditions from other European countries have a negative effect on industry growth in Austria. “The continuing decline in order numbers, in particular weakening export activity, led to a downturn in Austrian production output in May. While employment figures continued to rise, lower demand led to a sharp reduction in purchasing volumes, increased inventories in sales warehouses and significantly shorter delivery times,” says Bruckbauer, reflecting on the key details of the monthly survey of purchasing managers from the Austrian industry.
Production output on the decline
For more than four years, the production index has recorded values above the 50-point growth threshold, thereby demonstrating an uninterrupted expansion of Austrian domestic industrial production. “This marks the end of the longest ever phase of consecutive monthly increases in Austrian industrial production output since calculations began for the UniCredit Bank Austria Purchasing Managers’ Index in October 1998. The production index fell to 48.5 points, below the growth threshold, for the first time in 50 months. For the past six months, the decline in new business could no longer be offset by clearing order backlogs,” says UniCredit Bank Austria Economist Walter Pudschedl.
Order numbers continue to fall primarily as a result of the decline in export demand. In May, the downturn in new business from other countries accelerated yet further. However, since Austrian companies can fall back on full order books following a prolonged economic boom, this downturn has so far hardly been reflected in production output. Delivery times have been getting shorter for three months, though, and at an even faster pace in May.
Stronger growth than in the previous month, but purchasing costs slowly rising overall
In May, Austrian industrial companies responded to falling order numbers by reducing the purchasing volume for the third consecutive month. As the current production output remains very high compared to the previous month, despite the downturn, inventories of input materials and raw materials fell in May for the first time this year. The reluctance to purchase in May resulted from weaker order development, but this was fuelled by increasingly higher purchase prices in May.
“Due to an increase in the price of oil at the beginning of the month, average purchase prices increased again in May, more so than in the previous month. The increased cost burden was translated into higher selling prices despite strong competition against a backdrop of weakening demand. Overall, however, the price trends in purchasing and sales did not result in any change in the earnings situation for Austrian companies in May,” says Pudschedl.
Employment growth continues at a slower pace
In the aftermath of the long boom, the lower number of new orders has so far had little impact on the employment rate in Austrian industry. In May, Austrian companies even created further new jobs. However, the pace of employment growth has again slowed significantly. At 51.2 points, the employment index was at its lowest level since March 2016.
“In the first third of 2019, the number of employees in Austrian industry increased by 2.2 per cent compared to the previous year, with almost 15,000 new hires taking the total to over 625,000. Industry has accounted for around 20 per cent of the increase in employment in Austria during this period. The unemployment rate has dropped to 4.1 per cent and is only half as high as the economy overall,” says Pudschedl. The economists at UniCredit Bank Austria expect the total unemployment rate for 2019 to drop to 7.3 per cent in the economy overall, down from 7.7 per cent in the previous year.
Although the unemployment rate in manufacturing is also expected to fall, it will do so at a slower pace, down to 3.7 per cent from 3.8 per cent in 2018. As was the case in 2018, employment developed more favourably in the material goods industry than in the overall economy in the first few months of this year; however, this trend is expected to reverse in the coming months as a result of the slowdown in industrial activity.
The outlook remains gloomy
In May, the UniCredit Bank Austria Purchasing Managers’ Index fell below the 50-point growth threshold for the second consecutive month. For the first time in more than four years, the sub-indicator for production output is even showing a decline in output compared to the previous month. Furthermore, the ratio of new orders to inventories also indicates that production will continue to fall in the coming months.
The dwindling new business also requires lower production capacities in view of the fact that sales warehouses are sufficiently full. In addition, Austrian companies also take an increasingly pessimistic view of the medium-term outlook. For the first time in more than four years, the expectation index for production in twelve months has fallen below the growth threshold. At 49.9 points, the indicator points to the possibility of a further downward trend in the Austrian industry.
The slowdown in industrial activity is continuing at an unrelenting pace for the time being, in particular as a result of additional burdens created by the trade tensions between the US and China and the uncertainty around possible import duties on European cars. There are only a few signs that the downturn is slowly beginning to stabilise, such as the fall in incoming orders, which is no longer accelerating. This is also backed up by indicators that eurozone industrial activity is beginning to stabilise, demonstrated in particular by the slight recovery in the French Purchasing Managers’ Index.
“In the first quarter of 2019, industrial production in Austria increased further, by an average of 4.8 per cent year-on-year. Given the indicators of a more severe economic slowdown in the second quarter, we are expecting growth to fall to around 2.5 per cent for 2019 as a whole, down from 3.8 per cent in 2018. Despite the strong start to the year and the assumption that global trade will again provide greater support for the Austrian export industry in the second half of the year, the increase in industrial production will be significantly lower than in the previous year,” predicts Bruckbauer.
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0)5 05 05-41957;