BA-CA Purchasing Managers' Index in March:
Financial market turmoil yet to really impact on Austrian industry
- BA-CA PMI moves up again in March
- Growth in orders ensures expanding production
- Employment growth continues unabated
- Industrial activity to remain robust until mid-year
The BA-CA Purchasing Managers' Index (PMI) rose in March from 52.4 to 53.4. After the indicator hit a 2½-year low in the previous month, Austrian industry is now again setting a somewhat brisker pace. Although the index value for 2008 Q1 is below the mean level for 2007, it clearly exceeds the long-term average. "Despite the turmoil on the financial markets and the adverse overall conditions on the international scene, Austrian industry is proving to be in rude health, revealed Stefan Bruckbauer, deputy chief economist at Bank Austria Creditanstalt (BA-CA), who went on to say that: "There is no reason to be pessimistic, at least for the first six months of 2008."
Austrian industrial output was able to record robust growth again in March, with the launch of new, additional manufacturing capacities. The output index climbed to 55.2, the highest level in the current year and significantly higher than the 2007 annual average. This increase was enabled by the continued rise in demand for Austrian industrial products. The growth in orders was actually rather modest and also far lower than in the previous year, even though a good number of orders were brought forward to March in anticipation of future price hikes.
After the decline in the previous month the volume of incoming orders from abroad recovered. However, companies recorded just minor growth in relation to these orders too, which are extremely important for economic activity in Austria. In spite of negative international factors, such as the strong euro exchange rate, export demand has risen slightly. "Austrian industry is reacting very flexibly to the poorer overall conditions and is focusing its activities strongly on buyers in more dynamic economic areas outside of the dollar zone", said BA-CA economist Walter Pudschedl. As is evident from the latest foreign trade figures, the US dollar zone is losing its significance for the Austrian export industry, while trade with Central and Eastern European countries among others is booming.
Conditions for Austrian industry have also become more difficult in light of the way prices are developing on raw material markets. The record rise in the price of oil in March was felt by companies in the form of higher energy and primary material prices. And the increase in price of metals pushed the growth in average purchase prices to its highest level for more than one year. As a result, Austrian industry pushed its sales prices up even more. The increase in sales prices not only exceeded the figure from the previous month but was also the second strongest rise for the last year. Under the current conditions on the market it will become more difficult to fully pass on to customers the additional cost burden caused by the higher purchase prices. "Austrian industry is currently exposed to particularly intense pressure to rationalise operations and will have to undertake major efforts to boost productivity in order to safeguard competitiveness", noted Pudschedl.
In addition to the higher output and the development of new orders, the continued rise in employment, which even picked up pace in March, is an amazing sign of life from industry. While Austrian economic activity has been running along somewhat more sedately than in the previous year, its endurance is nonetheless impressive. However, the turmoil on the financial markets, which is causing the US economy to slide into a recession, will still hinder the pace of the European and thus the Austrian economy as the year progresses. Nevertheless, the latest data shows that the impacts on the Austrian real economy are likely to be less marked than originally feared. "As a result we continue to assume that Austria will record economic growth in 2008 of 1.9 percent. There is absolutely no need to fear a recession in Austria", said Bruckbauer. At the same time, the BA-CA economists believe that the chances of quickly traversing the rocky economic waters expected ahead are slim. The general international conditions will ensure that any recovery will not be seen until well into the following year. As a result, growth in 2008 could be a positive surprise, while that for 2009 may disappoint.
Note: PMI figures above the 50.0 mark indicate growth compared to the previous month; readings below the 50.0 mark indicate contraction. The greater the divergence from 50.0, the greater the change signalled. This report contains the original data from the monthly survey among purchasing managers of industrial companies in Austria. The survey is sponsored by Bank Austria Creditanstalt and has been carried out by NTC Research under the auspices of ÖPWZ, the Austrian Productivity and Efficiency Centre, since October 1998.
Enquiries: Bank Austria Creditanstalt Economics & Market Analysis
Walter Pudschedl, Tel. +43 (0)50505 Ext. 41957