UniCredit Bank Austria Purchasing Managers' Index in November:
Weak international environment drives continued downturn in Austrian industry
- The UniCredit Bank Austria Purchasing Managers' Index has shown an improvement in November for the second time in a row. However, with the index at 46.0 points, the growth threshold has now been consistently undershot for an eight-month period
- The increasing downturn in new business is leading to a somewhat higher rate of decline in production output
- The drop in employment levels slowed in November compared with the previous month
- The drop in input prices and in stocks of purchases is decelerating
- For the first time in five months, domestic industrial businesses are anticipating a slight increase in production for the year.
The pressures caused by the weakening international environment continued to have a major impact on domestic industrial businesses in the final quarter of 2019. "The UniCredit Bank Austria Purchasing Managers' Index stood at 46.0 points in November; the index has now been below the growth threshold of 50 points since April. However, the indicator has shown a slight improvement for the second consecutive month, suggesting that the downturn in the domestic industrial economy will begin to ease towards the end of 2019", reports Stefan Bruckbauer, UniCredit Bank Austria Chief Economist. This indicates that Austrian industry is heading in the same direction as Europe as a whole, but is lagging somewhat behind the eurozone average.
"The preliminary Purchasing Managers' Index for the eurozone gained some ground in November and increased to 46.6 points, buoyed by strong growth in French industry that is reflected in the increase in the French PMI to 51.7 points. The German indicator has also improved, but at 43.8 points is still falling significantly short of the European average, owing to factors such as the challenges in its automotive industry", says Bruckbauer.
Significantly fewer orders month on month
The slight improvement noted in the UniCredit Bank Austria Purchasing Managers' Index for Austria's manufacturing industry is not reflected in all of the indicator's sub-indices. "Domestic companies again reduced their production output slightly in November. The production index fell to 46.8 points, its second-lowest value in seven years. Austrian industry has had to adapt its production output to the marked decline in new orders that we are again seeing", explains Walter Pudschedl, UniCredit Bank Austria Economist. The decline in new business has contributed to a reduction in orders on hand in domestic industrial companies. As a result, businesses have reduced their quantity of purchases even further. The only glimmers of hope in the current order environment are the slowing decline in new export orders and the rate of reduction of suppliers’ delivery times, which has not increased any further on the previous month's performance.
Prices continue to fall
In a weak demand environment characterised by uncertainty, domestic businesses have once again made considerable efforts to reduce storage costs. While inventories held in warehouses increased slightly due to the continuing decline in sales, materials and raw materials inventories were again reduced sharply in November, although not at the same pace as in the previous month. The lower demand for primary materials and raw materials for production has once again contributed to a sharp drop in prices.
For six months, now, input prices have been falling, although the pace of decline has slowed somewhat in November. "Against the backdrop of the weak demand environment, output prices fell slightly faster than in the previous month. On average, however, price trends triggered by the fall in input prices have led to a slight recovery again in the profit situation of domestic businesses. However, this positive effect was much less pronounced than it has been in previous months", says Pudschedl.
Decline in employment levels has slowed slightly
A tougher new business situation combined with the drop in production has once again led to job losses in Austrian industry. "For the fifth month in a row, the industrial businesses surveyed had scaled back employment numbers in November compared with the previous month, although with a slower pace for the first time", Pudschedl reports. Viewed year on year, employment levels in Austrian industry are still rising — for the time being. By the end of the year, the average increase will fall from the current figure of 1.8 percent to around 1.6 percent due to the prevailing negative trend. This means that, on average, around 625,000 people were employed in the sector in 2019 — almost 15,000 more than in the previous year. Although employment growth in domestic goods manufacturing in 2017 and 2018 was higher than in the economy as a whole, contributing significantly to a reduction in the overall unemployment rate, 2019 will see only average employment growth in industry.
Sustained downturn but some positive signs
Despite another slight improvement, the current UniCredit Bank Austria Purchasing Managers' Index for Austrian industry indicates performance below the growth threshold of 50 points for the eighth consecutive month. The order situation continued to deteriorate and production was reduced at an accelerated rate. Nevertheless, the current survey also reveals some positive developments that point to the economic downturn in domestic industry slowing towards the end of the year.
The external environment is a particularly important factor, as evidenced in the slight improvements to the Purchasing Managers' Index for the eurozone and the main eurozone markets. The deceleration of the decline in export orders within domestic industry is also relevant. However, the ratio of new orders to inventory has deteriorated somewhat once more, with the new orders index dropping slightly from 45.3 to 44.8, while the index for stocks of finished goods increased from 49.5 to 51.2 points. As a result, inventories held in warehouses are sufficient to meet the demands of the lower levels of new business, meaning that production and employment levels may well be scaled back again in the coming months.
"Despite the latest improvement in the UniCredit Bank Austria Purchasing Managers' Index, domestic industrial businesses continue to face an extremely challenging global environment. A continuation of the economic downturn is expected over the coming months, although the pace is likely to slow somewhat. The medium-term outlook, however, has improved compared with previous months. For the first time since the spring, domestic businesses are once again anticipating production growth for the year as a whole", Bruckbauer concludes.
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0)5 05 05-41957;