UniCredit Bank Austria Purchasing Managers' Index in October:
Weakness in Austrian industry persists
- Despite a slight improvement in the UniCredit Bank Austria Purchasing Managers' Index in October, a PMI of 45.5 points indicates that the industrial downturn in Austria is set to continue
- New orders are no longer declining to such a high degree, to an extent slowing down the rapid slump in production somewhat
- Strongest job cuts in Austrian industry since the end of 2009
- Despite falling input prices, purchasing restraint is increasing and stocks of purchases are being reduced more quickly
- Uncertainty is becoming more entrenched: In October, production expectations for the next 12 months have risen only marginally above the seven-year low of the previous month
As the final quarter of 2019 gets under way, the slowdown in Austria's manufacturing continues. "The economic downturn in domestic industry became more entrenched in October. The moderate improvement to 45.5 points in the UniCredit Bank Austria Purchasing Managers' Index signals the continuation of the serious decline in domestic industry, with performance now undershooting the growth threshold for the seventh consecutive month", says UniCredit Bank Austria Chief Economist Stefan Bruckbauer. The current PMI reflects the second-weakest value in seven years. Austrian industry continues to feel a strong impact from the decline in global trade driven by the intensification in protectionism, and also from existing political tensions and the continuing uncertainties surrounding Brexit. The headwind from abroad is no longer exclusively affecting developments in the export-oriented industrial sectors.
"As a result of the weak new business, both domestically and from abroad, the companies again sharply reduced output in October and significantly reduced employment. Falling order backlogs and shorter delivery times point to existing excess capacities with prices continuing to fall as a result", states Bruckbauer in his summary of the key points from the monthly survey.
Sharp decline in production and new orders
October marked the sixth consecutive month of declining production in Austrian industry. This is the longest period of contraction since 2011. Although the decline in production slowed somewhat compared with the previous month, it was still one of the strongest in the past seven years. "The considerable drop in production experienced once again in October was a consequence of the significant slump in new orders within domestic industry. New business from abroad has been particularly badly affected. Domestic businesses report that a lack of investment and, in particular, the downturn in the German automotive sector are major drivers of this development", says UniCredit Bank Austria Economist Walter Pudschedl.
With the decline in new business still a dominant feature, Austrian manufacturers continued to whittle down outstanding orders in October. Suppliers´delivery times were pulled in significantly at the start of the fourth quarter, continuing a trend that has prevailed since March. This scenario is likely to have been driven in part by unutilised delivery capacity and the improved availability of raw materials.
Biggest decline in employment since the end of 2009
In October, domestic businesses responded to the ongoing deterioration in order volumes and the considerable erosion of the cushion of orders by adjusting personnel capacity once again. "The employment index fell to 45.0 points in October, pointing to a personnel reduction in manufacturing for the fourth consecutive month now. In addition, the pace of job cuts has again increased slightly compared to the previous month and is now the highest since the financial crisis in autumn 2009", says Pudschedl. The domestic industry, which still made an above-average contribution to the increase in employment in the Austrian economy as a whole in the first half of 2019, is thus increasingly becoming a burden on the Austrian labour market. While new jobs will be created in the service sector, the unemployment rate in Austria will trend slightly upwards in the coming months owing to the weak industrial economy. The UniCredit Bank Austria economists anticipate that average unemployment for 2019 as a whole will fall year on year, to 7.4 percent, though the figure is expected to increase slightly to 7.5 percent for 2020.
Economic concerns lead to more cautious inventory management and falling prices
The sustained decline in production output and new business also saw quantity of purchases drop in October. The reduction in purchasing activities goes hand in hand with increased efforts to reduce storage costs and optimise working capital. Whilst stocks of finished goods were reduced only slightly owing to waning demand, businesses have reduced stocks of purchases to levels last seen around three years ago. Inventory reductions were particularly apparent among manufacturers of intermediate products and investment goods. "The lower demand for primary materials and raw materials has contributed to a sharp drop in prices. Input prices fell for the fifth consecutive month, with steel, plastics and certain wood products being particularly badly affected in October. By comparison, the fall in output prices has been noticeably slower; as a result, price trends have led to a slight improvement in the profit situation of domestic businesses on average", says Pudschedl.
Negative expectations reinforced by uncertainties
Despite a slight improvement, the current UniCredit Bank Austria Purchasing Managers' Index for Austrian industry indicates performance below the growth threshold of 50 points for the seventh consecutive month. In view of a combination of negative factors, such as the trade conflict, the uncertainty in connection with the Brexit and a troubled automobile industry, no support for the domestic industry can be expected from other European countries.
The preliminary Purchasing Managers' Index for the eurozone remains unchanged at 45.7 points, with a rating of 41.9 points for Austria's largest sales market—Germany—pulling down the result for Europe as a whole. Moreover, the components of the current indicator for Austria point directly to a sustained downturn in the industrial economy. The ratio of new orders to inventory has improved slightly given the limited recovery of the new orders index from 44.3 to 45.5 points, and the index for stocks of finished goods fell from 50.8 to 49.5 points. However, stocks of finished goods are still full enough to meet the lower new business, meaning that production and employment levels may well have to be scaled back again in the coming months. "The economic concerns of domestic industrial businesses seem to be becoming more entrenched. The number of domestic businesses anticipating a year-on-year decline in production has now outstripped the number expecting growth across four consecutive months. At 46.0 points, the future output index sits only slightly above the seven-year low of the previous month", concludes Bruckbauer.
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0)5 05 05-41957;