After a particularly strong few summer months, the recovery in domestic industry is set to maintain its impetus at the start of autumn. “Austrian industry is still on top form. The UniCredit Bank Austria Purchasing Managers’ Index stands at 59.4 points in September. This means that, in one of the longest periods of growth to date of over two and a half years, the current indicator is showing a rate of growth that is still strikingly positive even in comparison with the rest of Europe – even if it falls slightly short of the high figures seen this summer”, says UniCredit Bank Austria Chief Economist Stefan Bruckbauer. For the 20th month in a row, the Austrian Purchasing Managers’ Index has therefore outperformed the reference value for the Eurozone, which rose to 58.2 points in September.
“September once again saw a large increase in production, incoming orders, new export business and employment in domestic industry. Although slightly lower than the previous month, Austrian companies have consistently achieved stronger growth than the European average – with the exception of export orders”, says Bruckbauer, referring to the most important detailed results from the survey of purchasing managers.
Less tailwind from abroad
Momentum in new business began declining two months ago, but this trend has been moderated in September. The backlogs of work are therefore increasing at a slower rate, but a very strong upward trend continues regardless. “New business has fallen slightly in terms of both foreign and domestic orders. Austrian industrial companies have therefore slightly cut back production expansion at the start of the third quarter of 2017”, says UniCredit Economist Walter Pudschedl, referring to the most important factor for the drop in the UniCredit Bank Austria Purchasing Managers’ Index at the start of autumn. The subindex for production output has fallen from 61.7 points in August to 59.7 points in September. Nevertheless, this figure is still the fourth highest recorded during the current recovery in industrial activity.
In view of the excellent situation in terms of demand, domestic industry has continued to adapt its personnel capacity to meet the increased production requirements. New jobs have been created in industry every month since the middle of 2016, and companies have continued hiring in September. Compared with the six-and-a-half-year high of the previous month, employment growth has only slowed to a marginal degree. Due to the very substantial increase in employment since the start of the year, approximately 3% more people will be employed in industry in 2017 compared to the previous year, with an average of almost 600,000 people working in the sector.
After two consecutive years of declining employment and one year of stagnation, manufacturing appears to have resumed driving employment in 2017, with significantly higher growth than in the economy as a whole. “In light of the major expansion in production over recent months, the utilisation rate in domestic industry has now reached the long-standing average and requires further adaptation of personnel capacity. Industry will have a decisive impact on the sustained improvement in the Austrian employment market in 2017, as well as being materially responsible for the fall in the unemployment rate from 9.1% the previous year to an average of 8.6% over 2017 as a whole”, explains Pudschedl.
Accelerated rise in input prices
The upturn in industry is perceptibly reflected in the current price trends as well. “The continued increase in demand has once again made many primary and raw materials more expensive. The cost burden, which could be felt even a few months ago by domestic industrial companies due to increasing input prices, became even more pronounced in September”, explains Pudschedl. However, despite strong competition, producers were at least partially able to balance the substantial rise in primary material costs with higher output prices. Price enforcement in domestic industrial companies has improved in past months due to strong demand.
Significant momentum continues into the autumn
Industry continues to develop extremely well, even if growth in the sector has probably peaked. While production growth in the summer turned out to be unusually high, some partial indicators in the current UniCredit Bank Austria Purchasing Managers’ Index point to a deceleration of the industry upturn with the start of autumn. Nevertheless, the order situation is improving, order backlogs are seeing substantial growth and production is picking up. The ratio of incoming orders to inventories has fallen slightly compared to previous months but remains in positive territory. This is a reliable indication that the dynamic trend in industry will continue. “Growth in global trade is stabilising at a high level. Despite growing geopolitical risks, the current Bank Austria Purchasing Managers’ Index makes it clear that, after an excellent summer, domestic industry will continue on a strong upward course over the coming months. We have increased our growth forecast for the sector to approximately 5% in real terms for the current year, after 2% for 2016”, says Bruckbauer. This means that Austrian industry will enjoy the strongest increase in production for six years in 2017.
GDP growth of 3% for the first time in a decade
Backed by the strong momentum in industry and after a very strong first half of the year, the Austrian economy has benefitted from a fast pace of growth over the summer as well, posting economic growth of 2.9%. High export demand, reflected in the upturn in industry, has boosted investment activity. Despite the diminishing effects of the 2016 fiscal reform, private consumption is seeing solid growth, buoyed by high employment growth. The available early indicators and indicators of mood, as well as the current UniCredit Bank Austria Purchasing Managers’ Index, suggest that the prospects for favourable economic development in the coming months remain good.
“Since the latest figures for the first half of the year reveal even stronger momentum than previously, the Austrian economy enjoyed an especially positive dynamic over the summer. We have significantly increased our GDP forecast for 2017 to 3%, the more so given that the tailwind from abroad, which is having a positive impact on industrial growth, is continuing, and that domestic demand, above all the result of high investment, remains in good shape”, concludes Bruckbauer. The UniCredit Bank Austria economists forecast economic growth of 2.1% for 2018, primarily due to the somewhat lower boost provided by domestic demand. In addition to the lower rate of new borrowing, debt reduction by the “bad banks” and the upward revision made to GDP levels, this strong growth is a factor in the Austrian national debt falling below 80% of GDP for the first time since 2009 in 2017.
Enquiries: UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0) 5 05 05-41957;