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30.07.2008

Bank Austria Purchasing Managers' Index in July:
Austrian industry trending downwards again

  • Bank Austria Purchasing Managers' Index at lowest in July for 6 years
  • Fewer orders, declining production
  • Job losses pick up
  • Economic prospects darken once again – GDP growth in 2009 only 1.2 percent

The Bank Austria Purchasing Managers' Index (PMI) has fallen significantly in July. At only 47 points it has recorded its lowest level for more than six years. The result of the survey has now been falling for four months in a row. Since March the overall index has been below 50 too, which is the borderline between growth and contraction. The environment for Austrian industry has steadily worsened in recent months. Growth in the USA and in parts of Europe is losing momentum while the situation is not being helped by the developments in raw material prices and the weak US dollar either. "Domestic industry is unable to extricate itself from the negative international factors and these have now started to put the brakes on Austrian economic activity", explained Stefan Bruckbauer, deputy chief economist at Bank Austria.

According to the estimates of the Bank Austria economists, the road directly ahead for Austrian industry will be even rockier. The production output of Austrian companies fell markedly in July. The index has fallen to its lowest level since late 2001 / early 2002. Moreover, the volume of incoming orders is also shrinking.  In spite of modest stabilisation observed for export orders, the cooldown in demand both at home and abroad is persisting. "The deterioration in the result of the survey is broadly based, and as such there is no change on the horizon for industrial growth; the Austrian economy is likely to be on the brink of a severe economic downturn that may last through into next year", said Bruckbauer.

The economists of Bank Austria also deem the acceleration in job losses in July to be a clear signal of the ongoing cooldown in industrial activity. While employment is rising in other sectors of the economy, domestic industrial companies have already responded and are adjusting their personnel capacities to the poorer overall conditions. "The reduction in employment numbers in industry clearly demonstrates that a change is just round the corner for the entire labour market too. The unemployment rate will rise again in 2009", revealed Bank Austria economist, Walter Pudschedl.

There is also greater uncertainty as regards storage services and goods purchasing. In light of the lower production demands, purchasing volumes dropped sharply in Austrian industry in July. While stocks of primary materials remained essentially unchanged, the stocks of finished goods decreased markedly. "Given the adverse general conditions, Austrian industrial companies have opted to use their stocks of finished goods to complete existing orders, without then fully replenishing these inventories", revealed Pudschedl. Another sign of the fatigue of industrial activity in Austria is that delivery times have barely increased in July, for the first time in several years.

The current purchasing managers' index of Bank Austria shows that industry, which at the beginning of the year provided enormous impetus for the Austrian economy, is now no longer able to inject momentum into growth trends, on the contrary in fact, it has started to hamper Austrian economic activity.  In the opinion of the economists at Bank Austria, the adverse international conditions will weigh down more heavily on economic activity in the coming months, which means we can expect the Austrian economy to move to the brink of stagflation in what remains of the year. What is more, the variety of existing risks is dampening hopes of a rapid recovery. No growth impulses can be identified either within Austria or abroad. "After GDP growth of 2.3 percent this year we anticipate economic growth will total only 1.2 percent in 2009", said Bruckbauer, who added: "Moreover, the adverse global conditions mean that there are substantial downside risks." Nonetheless, the economists at Bank Austria believe it is still unlikely the Austrian economy will slip into a recession.

 charts (PDF; 48 KB)

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 of purchasing managers from industrial companies in Austria. The survey is sponsored by Bank Austria and has been carried out by Markit Economics under the auspices of ÖPWZ, the Austrian Productivity and Efficiency Centre, since October 1998.

Enquiries: Bank Austria Economics & Market Analysis
Stefan Bruckbauer, Tel. +43 (0) 50505 Ext. 41951
E-Mail: stefan.bruckbauer@unicreditgroup.at

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