Bank Austria Purchasing Managers' Index in May:
Increased signs of weakness from Austrian industry
- Purchasing Managers' Index for May remains below growth reference value of 50
- Orders declining, output stagnating
- Industry starts to shed jobs
- Economic slowdown confirmed after strong start to year, no recovery in sight until 2009
In May Bank Austria's Purchasing Managers' Index (PMI) stabilised at last month's level. For the second month in succession it fell below the 50-point mark, thus signalling a sustained tendency towards contraction. "The current level of Bank Austria's Purchasing Managers' Index emphasises that negative international growth parameters and the strong euro in particular are leaving their mark on Austrian industry," thinks Stefan Bruckbauer, deputy chief economist at Bank Austria. The heavily export-orientated industry, which was still providing the Austrian economy with a strong growth surge at the start of the year, is now slowly turning from the path of growth.
"Austrian industry's long-term boom has come to an end," is Bruckbauer's interpretation of the production index's downward trend, which has persisted for several months. The fall to the 6-year low of 50.1 indicates that industrial output was already stagnating in May. Several other survey components suggest even weaker growth for the rest of the year, if not a slump in Austrian industry.
This includes the trend in new orders. In the last two months Austrian industry has been faced with steadily falling demand for domestic products. Both demand from Austria and abroad are in decline. "The deteriorating trade conditions outside the European area in particular are currently having a negative impact on Austrian industry's orders," states Bank Austria economist Walter Pudschedl. For two months in succession the corresponding index components have fallen below the neutral reference value of 50. Order books have become appreciably thinner as a result. In May the backlog of work index even fell to 45.9, the lowest value since these records began.
Furthermore, previously dynamic employment growth in Austrian industry has now come to a standstill. In May there were even job losses for the first time in more than two-and-a-half years. The employment index fell from 51.8 to 49. "In view of the continued decline in orders and ensuing lower demand for output, Austrian industrial firms are not currently driving employment," according to Pudschedl.
After the strong start to the year the Austrian economy is now showing signs of tiring, which is clearly underlined by the current Purchasing Managers' Index. The decline in new business, the impaired order situation and the reversal in the employment trend are all casting a long shadow over further business prospects. In the opinion of Bank Austria's economists, industry will not be able to perform its previous role as the powerhouse of Austria's economy for an extended period. The economy will therefore slow down over summer and autumn, and new impetus can only be expected after that.
Due to strong performance in the first quarter, Bank Austria's economists have, however, increased the 2008 growth prediction to 2.3 percent. The international economy, which will remain weak into 2009, will prevent GDP rising by more than 2 percent next year though. The considerable economic risks, such as oil price trends, the unfavourable euro/dollar exchange rate and the restrained growth prospects in the USA and major European countries are impeding a rapid recover in industry and thus in the Austrian economy as a whole. In the medium-term, however, Bank Austria's economists remain optimistic. "Despite many risks, we are assuming that the impending weak phase can be overcome during 2009," is how Bruckbauer sums up the outlook for the Austrian economy.
charts (PDF; 77 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 NTC Research under the auspices of ÖPWZ, the Austrian Productivity and Efficiency Centre, since October 1998.
Enquiries: Bank Austria Economics & Market Analysis
Walter Pudschedl, Tel. +43 (0) 50505 - 41957