Sector Report from the Bank Austria Creditanstalt Group Economics Department:
Machine building on a record-breaking pace again in 2007
- Sector sees above-average growth for the fourth straight year
- Great improvements in productivity ensure competitive edge
- Increases in raw material prices curb earnings
- Weaker investment demand in export markets to slow growth in 2008 and 2009
In 2006, the Austrian machine building sector again posted one of the best performances when compared both to other industries in Austria and the sector throughout the rest of Europe. Production increased by 9.3 per cent and sales increased by 15.1 per cent, reaching about €18 bn. In 2007, the sector is enjoying above-average growth for the fourth straight year. These are the highlights of the newest sector report from the Bank Austria Creditanstalt (BA-CA) Group Economics department. In the first half of 2007, growth in the sector accelerated, stimulated by the investment boom in the Austrian industrial sector. Even if the boom in the industrial sector cools down between now and the end of the year, the machine building sector should be able to equal last year's high level of growth again in 2007.
With 68,000 workers or 12 per cent of all industrial jobs on the national labour market, the machine building sector plays a larger role in domestic economic output than in every other country in Europe except for Germany and Italy. By continuously improving its productivity, the sector has ensured its competitive edge and, as a result, its lead in growth. Since as early as 1994, Austria's machine building industry has been able to protect its lead in growth from the European competition virtually without exception. "Despite a high level of dependence on exports, the success of the machine building industry proves that a predominantly small to medium-sized business structure doesn't necessarily have to be a competitive disadvantage," says
Despite vigorous domestic growth, the industry's performance in 2007 depends more on foreign demand, since three-fourths of the sector's output is destined for foreign buyers. "The strong development of exports over such a long period of time – the export of machines has grown by an average of 8 per cent a year since 1995 – confirms the Austrian machine builders' ability to compete," says industry analyst Wolf. The companies are able to pull away from the competition by producing top quality (special) machines and capitalising on cost and price advantages. Even though the sector is losing part of its share in the market for standard products to Eastern European and Southeast Asian competitors, the trade surplus for machines and equipment is growing uninterrupted, reaching €4.3 bn in 2006.
However, the tremendous boom in the machine building sector over the last few years has not translated into proportionate earnings growth due to the massive increase in raw material prices. The development of wholesale prices shows that the predominantly medium-sized machine building companies, which need to put 40 per cent of their sales revenues into buying materials on average, have only partially been able to pass on their increased costs in their selling prices: While steel prices have doubled since the beginning of 2003, the prices for machine products have only increased by 20 per cent.
"Possibly in 2008 and at the very latest in 2009, the decreasing investment demand in the traditional markets of Western Europe and the
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