UniCredit Bank Austria Purchasing Managers' Index in August:
The economic downturn may be stabilising for domestic industry, but uncertainty is increasing

  • The UniCredit Bank Austria Purchasing Managers' Index rose slightly in August for the first time since November 2018, but at 47.9 points it still remains below the growth threshold of 50 points
  • Although the downturn in new business has slowed, production output saw a greater decline than in the previous month
  • The reduction in employment continues at an almost undiminished pace
  • The slightly slower decline in the price of raw materials is in turn slowing the reduction in output prices
  • The rapid reduction in inventory and the sharp decline in production expectations demonstrate an increasing uncertainty in domestic industry as a result of ongoing trade conflicts

Austrian industry continues to be hindered by the effects of reduced global trade as a result of political tensions and the intensification of the trade conflict between the US and China. "The UniCredit Bank Austria Purchasing Managers' Index reached 47.9 points in August. This means that the indicator has now been below the growth threshold of 50 points for five consecutive months, which indicates that the slight recession we are seeing in domestic industry will continue throughout the summer," says Stefan Bruckbauer, Chief Economist UniCredit Bank Austria. "However, the continuous deterioration shown in the UniCredit Bank Austria Purchasing Managers' Index ended in August after a total of nine months. For the first time, we are seeing signs indicating that the rate of industrial decline is slowing."

"With a slower downturn in new business and the current price trends, production output in August is indicating that the economic downturn is currently stabilising. By contrast, the medium-term outlook for domestic industry has deteriorated even more. Domestic companies have become very cautious when it comes to inventory and production expectations have fallen," adds Bruckbauer.

While the industrial economy has stabilised in August, the medium-term outlook has deteriorated in the euro area — namely in Austria's most important trade partner, Germany. In August, the preliminary Purchasing Managers' Index for the euro area increased by 0.6 points to 47.0, and for Germany it rose from 43.2 points to 43.6. However, the outlook has deteriorated over the course of the year. While production expectations for German industry are falling sharply, with an index of 51 points, the euro area actually has a slightly more optimistic outlook — even though it is in decline.

Decline in new orders eases
The stabilisation of the economic downturn in domestic industry is mainly due to the slower downturn in new business. Although the number of new orders fell in August for the eighth consecutive month, the rate of decline has slowed significantly. At 48.1 points, the new order index is now at its highest since February. In the export sector in particular, the severity of the decline has decreased substantially. At 47.3 points, the index actually reached its highest value this year.

"Although the downturn in new business slowed in August, domestic companies have reduced production slightly more than in the previous month. However, at 49.0 points, the production index indicates a relatively small reduction in production output in relation to order development, which is reflected once again in a huge reduction in order backlogs", says UniCredit Bank Austria Economist Walter Pudschedl.

At 42.3 points, the index for order backlogs has fallen to its lowest value since April 2009, at the peak of the financial crisis. As there is still a large backlog of orders waiting to be processed by domestic industrial companies from when new business began to downturn, the economic downturn has had a limited impact on employment figures. Although employment fell in August for the second consecutive month, the employment index increased slightly to 47.9 points.

Prices are still falling, but not as rapidly
In view of the continuing low demand, prices continue to show a downwards trend. However, the rate of this decline slowed slightly in August for both purchasing and sales. The cost of raw materials and primary materials decreased for the third consecutive month. The lower costs have been passed on by the domestic companies in the form of a reduction in output prices due to fierce competition.

"Despite low demand, Austrian industrial companies managed to minimise reductions in sales price in August, and, in light of lower raw material prices, to even improve the earnings situation on average compared to the previous month", says Pudschedl.

Increasing uncertainty for the rest of the year
The trade dispute between the US and China, a possible increase in US import tariffs for the European car industry and the increasing risk of a no-deal Brexit have all resulted in increased uncertainty among domestic industrial companies with regard to the economic outlook.

This is evident in the very cautious way that inventory is being managed. Despite lower prices for raw materials, companies have again cut down their purchasing volume considerably and reduced their stocks of purchases even more than in the previous month. While the stocks of purchases were cut for the fourth consecutive month in order to lower costs, stocks of finished goods have also been reduced for the first time since spring, despite sluggish demand.

On the other hand, the increased uncertainty in domestic industry is reflected in declining production expectations. "The outlook for Austrian industry noticeably deteriorated in August. The 12-month production expectation index has fallen to 47.3 points — the lowest value for more than six years. This indicates that domestic companies are currently expecting a decline in production output for the rest of the year", Bruckbauer concludes.


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