“At the start of autumn industrial activity in Austria lost some of the very substantial momentum from the summer months, but the growth rate is still running at a high level thanks to continued strong demand from abroad. This is indicated by the UniCredit Bank Austria Purchasing Managers’ Index, which at 59.4 points in October did not change compared with the previous month”, said UniCredit Bank Austria Chief Economist Stefan Bruckbauer. In October the current Index still well exceeds the neutrality line of 50 points, above which industrial growth is measured, as well as the long-term average of 52 points. However, the peak values of more than 60 points in summer 2017 will no longer be attained.
“In domestic industry October was characterised by a high increase in production thanks to more incoming orders, albeit at a slightly lower level than in the previous month. By contrast, the growth in employment speeded up. The strong price buoyancy for primary materials, increasing order backlogs and the extension of suppliers’ delivery times bear witness to the as yet barely diminished strength of the economic upturn in domestic industry”, said Bruckbauer specifying the most important detailed results of the survey among Purchasing Managers.
Increase in new business with less momentum
Austrian companies have received an increasing number of new orders every month for almost two years. The order situation in Austria at the start of the final quarter of 2017 is therefore very good. However, the dynamism in new business has been decreasing for four months in succession. “Whereas export demand has increased due to the economic upturn in Europe, order growth in October was again generally lower than in previous months. Consequently, industrial companies have reduced the expansion of production for the second month in succession”, said UniCredit Bank Austria Economist Walter Pudschedl. Standing at 58.8 points, the latest Production Index is at its third lowest level in 2017, but still indicates continued rapidly increasing production output in Austrian industry.
Industry still creating many new jobs
The ongoing expansion of production is continuing to increase demand by Austrian industrial companies for manpower. In October the speed of employment growth rose considerably compared with the previous month. Employment in the goods manufacturing sector has now been rising very substantially for around one and a half years. The number of jobs in this sector is predicted to increase in 2017 by a total of 3 per cent to around 600,000. This means that almost 18,000 additional jobs have been created within one year, with a very large number of them in motor vehicle construction, mechanical engineering and food production.
Industry is therefore making an above-average contribution towards the current improvement in the situation on the Austrian labour market since it accounts for around one quarter of the around 70,000 new jobs which will be created in Austria in 2017. That is well above the value-added share of goods production amounting to around 18 per cent. “Domestic industrial companies will again have to significantly increase their personnel capacities in the coming months in order to handle the growing order backlogs. We are assuming that the unemployment rate in goods production in 2017 will drop to an average of 4.5 per cent and will therefore be well below the expected figure of 8.6 per cent for the economy as a whole”, said Pudschedl.
Input prices still soaring high
The positive industrial activity worldwide and the resulting high demand are leading to a strong upsurge in prices for primary and raw materials, which is reflected in the development of input prices of Austrian companies. Compared with the previous month, input prices in October increased at the highest rate for six and a half years although the quantities of purchases remained largely unchanged. In spite of the tough competition, the higher costs could at least be offset at times by higher output prices.
Overall, the rises in input and output prices In October led to higher costs and a downturn in earnings for Austrian companies compared with the previous month. Due to a cautious inventory strategy, attempts are being made to counteract the increasing cost burden in purchasing. However, in the currently favourable demand environment it is necessary to keep a close watch on the security of supply for customers. The average suppliers’ delivery time again increased substantially in October.
Warm autumn after a hot summer
Now lasting for more than two and a half years, the current upward trend in the UniCredit Bank Austria Purchasing Managers’ Index is the longest in its almost 20-year history while the high rate of growth is still continuing. However, there are growing signs that the economic peak has now been reached. After the extraordinarily high rise in production in summer, the majority of partial indicators in the latest UniCredit Bank Austria Purchasing Managers’ Index prove that the industrial upswing in the previous month is losing strength.
New business is no longer increasing so substantially while the expansion of production is slowing down. Although the ratio between incoming orders and stock levels is now decreasing significantly compared with previous months, it is still very positive. Since the production expectations of Austrian Purchasing Managers continue to be clearly directed upwards, this is a sure indicator of still continuing dynamic development in industry, albeit at a slightly slower rate than in summer.
Although the Future Output Index calculated during the survey has weakened compared with the previous month, its high level of 65.2 points in October holds out the prospect of pronounced industrial expansion in the next twelve months. “In 2017 we expect production in domestic industry to increase by around 5 per cent, the highest rate for six years. This speed of growth will no longer be attained next year, but we believe that some sectors, for example the export-oriented steel industry and motor vehicle production, have good prospects for doing better in 2018 than this year”, concluded Bruckbauer.
Enquiries: UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0) 5 05 05-41957;