The results of company surveys performed across a wide spectrum of sectors in the third quarter of 2017 point to a very favourable performance. Stefan Bruckbauer, UniCredit Bank Austria’s Chief Economist, summarises the current industry overview: “Business sentiment in Austrian industry improved on an almost consistent basis in the first nine months of the year. In November, the business confidence index rose to a level last seen in 2007, before the crisis. Business-relevant service industries are also benefiting from the acceleration of growth in industry. In addition, the appraisal of current business developments by construction companies is more favourable than in the previous ten years, despite weaker production growth in recent months. Only the mood in retail trade is still clouded”.
In 2017, the favourable business sentiment was reflected in the strong, 2% growth in employment in the overall economy in the first eleven months of the year. “A remarkable development is the 3.2% increase in industrial jobs until November 2017, the highest annual growth rate in the last twenty years. In addition, unemployment in the industrial sector will fall to an average 4.4% in the current year. This compares with a rate of 8.5% for the Austrian economy as a whole, underlining the industrial sector’s significant contribution to stabilising Austria’s labour market” says Günter Wolf, economist at UniCredit Bank Austria.
Industrial growth accelerates in 2017
Business confidence of industrial companies rose further in November, with sentiment improving in almost all major areas. “Based on lively demand for capital goods in Austria and abroad, and more buoyant demand from the construction industry, Austria’s industrial sector will grow by at least 4% in 2017. This is faster than the multi-year average” says Wolf.
Mechanical engineering, in particular, will benefit from the strong momentum of investment activity in Europe, which is likely to continue in 2018. Although production in this sector did not pick up noticeably until the second half of the year, it is expected to accelerate to at least 4% in average terms for 2017, equal to the output growth of industry as a whole. The favourable output expectations and appraisals of the order situation in November point to further growth until 2018; the optimistic investment forecasts for the coming year suggest that the growth currently experienced by the mechanical engineering industry in its key export markets will continue to accelerate.
The construction-related industrial sectors and specific sectors associated with steel production and manufacture of metal goods, plastics processing and the electrical industry reported sharp increases in export orders in September. With the exception of the steel industry, the latest survey in November moreover reflects a more optimistic appraisal of the order situation. In 2017, construction activity, especially in the area of structural engineering, is growing faster in important European markets than in Austria. Although the steel industry’s output expectations still contained a degree of uncertainty in recent months, the industry is now recording strong growth and will end 2017 with output growth of around 6%. It was nevertheless easily outperformed by the electrical industry, which in the current year again posted the strongest growth in Austria’s industrial sector as a whole. The most recent survey results confirm the record growth of 9.6% which the steel industry achieved in the first few quarters of the current year.
The automotive sector, in particular, was among the industries with more sluggish growth in 2017. While the output expectations of companies in this sector remained optimistic, their appraisal of the order trend was largely sceptical in November. The excellent prospects of some companies in Austria can only partly offset the weaker output growth of Europe’s automotive industry in 2017, the most important demand segment of Austrian suppliers.
Construction industry features stable growth
“In Austria, construction output rose by 3.5% in the first nine months of 2017, with the civil and structural engineering segments making contributions of a similar magnitude. Based on the strong rise in business confidence in the structural engineering segment, one may expect construction output to gain further momentum in the fourth quarter of 2017. In average terms for the year and with output growth of about 4% in real terms, the construction industry will in any event clearly exceed its previous year’s performance” says Wolf.
In 2017, the growth of the structural engineering segment has so far been driven by dynamic construction activity of new apartments, while commercial construction has not yet seen stronger growth in turnover. However, the industry’s investment plans were sharply revised upwards for the fourth quarter, signalling the initiation of new construction projects also in the corporate sector in 2017. Construction activity in the civil engineering sector remains volatile in 2017, despite the additional funds earmarked for road and railway construction, as revealed by the segment’s more cautious appraisal of the order situation in November.
Trade sentiment: sunny to cloudy, depending on the sector
The significant performance differences among the various segments in the trade sector more or less continued to persist in 2017: in the year up to September, on a price-adjusted basis, sales of vehicles rose by 6.3%, wholesale trade grew by 2.7% and retail sales expanded by 1.5%. The exceptionally strong trade in vehicles will be losing some of its momentum by the end of the year, as the more pessimistic demand expectations of dealers seemed to suggest in November. The segment will nevertheless expand at a disproportionately strong rate for the second year in succession. While wholesale trade also continues to benefit as before from the recovery of exports and the industrial sector, the stronger growth is limited to a small number of segments, especially wholesale trade in information technology, machinery and pharmaceutical products.
Retail sales, which come in last, can evidently hardly benefit from the remarkable recovery in consumer sentiment in Austria. November saw a slight improvement in the demand expectations of retailers. However, business sentiment only improved in trade in food and in the filling station segment, while deteriorating further in other retail trade segments.
Services sector gains momentum
Following the gratifying performance of the services sector in 2016, the upturn experienced by this sector accelerated in 2017. In November, the disproportionately optimistic demand expectations of companies in almost all major business-related service segments announced further growth in turnover. This is explained primarily by the continued robust growth impetus provided by industry and construction. The segments with the strongest growth rates include transport services, IT services, engineering firms, manpower agencies and advertising companies.
“The unusually strong improvement in sentiment in the parcel delivery service segment in November, when the balance of optimistic and pessimistic demand expectations jumped from 33% to 60%, is probably largely attributable to dynamic online trade activities. This assumption is supported by an increase in online shoppers as a proportion of the population, from 58% in 2016 to 62% in 2017. In the first half of 2017, turnover of parcel delivery companies was up by over 5% in nominal terms, easily the highest increase in five years. However, the expectations of companies in November also point to considerably stronger pressure on prices in this segment in recent months. The growth in turnover of parcel delivery companies is likely to slow down in 2017” says Wolf.
As in the previous year, the hotel and restaurant segment was one of the strongest performers in the service sector in 2017, although restaurants were most recently not quite as optimistic as in the first half of the year. This is also reflected in slightly weaker turnover in the third quarter following growth of 5.3% in the year until June. Nevertheless, business confidence of hotels improved again in November.
Enquiries: UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, tel. +43 (0) 5 05 05-41954