UniCredit Bank Austria Purchasing Managers' Index in September:
Acceleration of downward trend in Austrian industry at the beginning of autumn

  • UniCredit Bank Austria Purchasing Managers' Index falls to 45.1 points in September, its lowest level in seven years 
  • Domestic businesses significantly reduced production output following marked decline in new orders 
  • Biggest decline in employment levels in Austrian industry since autumn 2009 
  • Slight improvement in the profit situation of domestic companies as input prices fall more than output prices 
  • Production expectations for the next twelve months fall to a seven-year low at the beginning of autumn 

Since the peak at the turn of the year 2017/18, Austria's industrial economy has slowed as a result of the weakening of global trade. The increased challenges being faced have even caused a decline in production output since spring this year. Following cautious signs that the decline was stabilising in the summer months, the pace of the domestic industry's downward trend increased significantly at the beginning of the autumn. "The weakening of the global economy, combined with simmering trade conflicts and continuing uncertainties such as Brexit, are having a noticeable dampening effect on the industrial economy at the beginning of autumn. In September, the UniCredit Bank Austria Purchasing Managers' Index fell to 45.1 points, its lowest level in seven years. The monthly decline was by far the biggest of the year so far and, for the first time, all components of the indicator deteriorated," says UniCredit Bank Austria Chief Economist Stefan Bruckbauer. 

Industrial downturn across Europe 
The development in Austria in September follows the European trend. The preliminary Purchasing Managers' Index for the Eurozone has fallen to 45.6 points, falling short of the 50-point growth threshold for the eighth consecutive month. The weakness in the manufacturing industry in Europe is strongly influenced by the downturn in Germany. At 41.4 points, the German Purchasing Managers' Index has fallen to its lowest level since the 2009 financial crisis. "Industry is showing weakness across Europe. The downturn is intensifying at the beginning of autumn — not only in Germany, our most important trading partner, and France, but also outside of the core markets. The result is even greater challenges for the domestic export-oriented industry and an increase in the risk that the weakness in industry will spread to the domestic economy," says Bruckbauer.  

For the first time in three and a half years, the Austrian Purchasing Managers' Index is significantly below the average for the Eurozone. "The lack of orders from abroad also severely dampened new business domestically in September. Businesses have significantly reduced production and employment levels compared with the previous month. As a result of growing economic concerns, Austrian industry is purchasing less and has reduced stocks of purchases despite falling prices, while stock levels of finished goods have increased due to a lack of demand," Bruckbauer concludes. 

Significant decline in production
The decline in the UniCredit Bank Austria Purchasing Managers' Index was again pulled down particularly significantly by the fall in new business in September. Both export demand and—even to a slightly greater extent—domestic new orders declined faster than in previous months. "As a result of the significantly deteriorating order situation, Austrian businesses substantially reduced production output in September. The production index fell to 46.4 points. We have not seen such a significant decline in production for seven years," says UniCredit Bank Austria Economist Walter Pudschedl. 

The reduction of backlogs of work meant that there was relatively little adjustment of production to the weaker demand in previous months. As a result, the necessary adjustments are particularly severe now that the order cushion has disappeared. 

Due to weak new business, domestic businesses have significantly reduced their quantity of purchases. As demand waned in a globally weaker economic environment, prices for raw and primary materials in Austria also fell for the fourth consecutive month in September — at a significantly increasing pace. "Despite declining demand, the noticeable fall in input prices was only partially reflected in output prices in September. There was a slight improvement in the profit situation of Austrian companies overall due to the greater reduction in costs on average," says Pudschedl. 

Change in trend on the labour market
The increasing economic uncertainty, combined the significantly lower backlog of work in a deteriorating demand environment, saw personnel capacity being adjusted to the lower production requirements for the third month in a row in September. The employment index has fallen to 45.1 points. This signals the biggest reduction in personnel since the financial crisis in autumn 2009. In the first few months of 2019, industry made an above-average contribution to the increase in employment in the overall economy. A total of 12,000 new jobs have been created in the sector year-on-year. This corresponds to almost 20 percent of the total increase in employment in Austria. "The reduction in unemployment in domestic industry continued in the first half of 2019. However, the beginning of autumn has seen a change in this positive trend. At 3.7 percent, we expect the average annual unemployment rate for 2019 to be lower than the previous year's level of 3.9 percent. In 2020, however, unemployment in Austrian industry is expected to increase and thus contribute significantly to the increase in the unemployment rate in the economy as a whole from 7.4 percent in 2019 to 7.5 percent in the following year," says Pudschedl. 

Prospects continue to dim 
Domestic industry is facing a sharp decline in new business and is adapting production requirements accordingly. The UniCredit Bank Austria Purchasing Managers' Index has now been below the 50-point growth threshold for half a year, with no change expected in the coming months. The components of the indicator signal a further decline in the industrial economy. The ratio of new orders to inventories has declined significantly again. "The stocks of finished goods are full enough to cope with the lower level of new business. We therefore expect production output and employment to be reduced further in the coming months. Furthermore, domestic production expectations for the year have fallen to a seven-year low. At just 45.5 points, the expectation index is below the growth threshold for the third consecutive month," Bruckbauer concludes. 


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