UniCredit Bank Austria Purchasing Manager Index in December:
Industrial activity remains weak at year-end, but first positive signs for 2020
- The UniCredit Bank Austria Purchasing Manager Index remained at the previous month's level of 46.0 points in December – this means that the growth threshold for domestic industry has not been reached in the past nine months
- Positive signs: The increase in the Future Output Index to 50.8 points indicates an improvement in the production outlook of domestic industrial firms for the year ahead
- The decline in new orders slowed down towards the end of the year, but production output was scaled back at an unchanged pace
- The greater cuts to purchase quantities and the reduction of inventories despite falling raw material prices underline the ongoing economic concerns of businesses
- The fall in employment continues, yet jobs in domestic industry still increased by 1.5 percent to almost 630,000 persons in employment as an average for 2019
The continuing weakness in global trade still has a strong impact on domestic industrial activity at the end of 2019. "The UniCredit Bank Austria Purchasing Manager Index again reached a mere 46.0 points in December. This means that, at the end of the year, the rate of the economic slowdown in domestic industry had stopped increasing compared to the previous month. Nevertheless, after moderate growth in the first quarter of 2019, the indicator is now, for the ninth consecutive month, below the growth threshold of 50 points", said Stefan Bruckbauer, Chief Economist at UniCredit Bank Austria.
In the eurozone as a whole, however, the Purchasing Manager Index deteriorated again towards the end of the year. At 45.9 points, it is now just below the figure for Austria. The German indicator in particular continues to push the European average down sharply.
"At the turn of the year 2019/2020, domestic industrial companies will continue to face a very challenging international environment. The outlook suggests that the economic downturn will carry on for the time being, although the pace at least is likely to slow down. Over the medium term, however, the prospects have already improved. The Future Output Index has increased to 50.8 points. Looking at the year ahead, businesses are expecting production to increase again", said Bruckbauer.
The situation with regard to new orders is the main factor in stabilising the indicator in Austria in December. "As the year draws to an end, the decline in new business has slowed down to some extent. Nonetheless, domestic companies have scaled back their production output in December to a somewhat greater extent. Employment figures also went down again. In an environment where demand is still weak, both raw material prices and output prices fell, while firms ambitiously continue their cautious, cost-conscious inventory policy", Bruckbauer said, explaining the key details emerging from the monthly survey of Austrian industry.
Smaller declines in new orders than in the previous month
Domestic firms have reduced their production output in December slightly more than in the previous month. The output index fell marginally to 46.5 points. Apart from the September 2019 figure, this is the lowest level in the past seven years.
"At year-end, production output was reduced even a little more sharply than in the previous month, influenced by the generally restrained demand, the weakness in the automotive industry and a lack of willingness to invest. However, the decline in new orders, both domestic and foreign, slowed down. In December, the drops in the export business were only the second lowest in 2019", said UniCredit Bank Austria economist Walter Pudschedl. The continuing decline in new business led to a further decrease in order backlogs, which in turn significantly reduced average delivery times.
"Domestic firms were able to negotiate lower purchase prices with their suppliers in view of the surplus supply of raw materials and input materials. In particular, low costs for steel, plastics and wood products accelerated the fall in purchase prices compared to the previous month", said Pudschedl. The Input Price Index was down to 44.9 points in December.
Due to increased competition in a weak demand environment, Austrian producers passed on the cost advantages in their output prices, at least partially. This applies in particular to producers of capital goods and semi-finished products. By contrast, both input and output prices rose in consumer-related sectors due to higher demand. On average, the price trends at the end of 2019 again led to a slight improvement in the earnings situation of domestic businesses.
Cautious inventory policy
In a weak demand environment marked by uncertainties and, in some cases, declining price expectations, domestic firms made great efforts in December to cut storage costs. The sharp reduction in purchase quantities led to the largest drop in inventories of input materials and raw materials in more than ten years; stocks of finished goods were also significantly reduced to keep costs down.
Further fall in employment
As output continued to decline, domestic firms also carried on cutting jobs in December, although the rate of job losses decreased for the second time in a row. "Jobs have been lost in Austrian industry for six months now. However, in the year 2019 as a whole, there was still an increase in employment of 1.5 percent year-on-year. This represents a rise of 10,000 to almost 630,000 persons in employment. This also means that unemployment in the sector fell again in 2019. As an annual average, the unemployment rate was only 3.6 percent, after 3.8 percent in 2018", said Pudschedl. The unemployment rate in the industrial sector was therefore significantly lower than in the economy as a whole, which averaged an estimated 7.4 percent in 2019.
A more favourable outlook for 2020
At 46.0 points, the overall UniCredit Bank Austria Purchasing Manager Index remained unchanged in December compared with the previous month. This indicates a continuing period of weakness for Austrian industry, with a further decline in output. Some details of the monthly survey nevertheless show positive signs, which at least point to a slowdown of the economic downturn in domestic industry from the beginning of the coming year. In particular, the losses in new business – also from abroad – are being reduced. Moreover, the inventories of domestic industrial businesses have now fallen sharply. As a result, the ratio of new orders to inventories improved significantly in December, indicating that stocks of finished goods are now only just full enough to be able to satisfy new business. Accordingly, smaller cuts in output and employment are expected in the coming months.
Following an increase in industrial production of over 4 percent in 2018, Austrian industry is now in recession, triggered by the weakness in global trade. According to UniCredit Bank Austria economists, while domestic industry has been able to avoid a decline in production in 2019 as a whole, as the year got off to a good start, it has not been able to increase output either. With a more stable export environment, the outlook for manufacturing in 2020 is rather more favourable again. A rise in output of around 1 percent is within reach.
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, tel.: +43 (0) 5 05 05-41957;