Bank Austria Purchase Managers' Index in September:
Heading swiftly for the economic trough
- In September, the Bank Austria Purchase Managers' Index slid to its lowest level since the turn of the year 2001/2002
- Sharp decline in new orders, fall in output and employment
- Favourable price trends overshadowed by weak consumption
- Industry experiencing prolonged period of weakness – turnaround not before mid-2009
The seasonally adjusted Bank Austria Purchase Managers' Index fell from 48.6 in August to 46 points in September. The indicator has consequently remained below the growth threshold of 50 points for the sixth month in succession and has reached the lowest level in 80 months. "The downturn of Austria's industry has gathered momentum and would seem to be very persistent“, explains Stefan Bruckbauer, deputy chief economist of Bank Austria.
The index's downward movement is broadly based, all partial components point downwards. Much of the downturn is attributable to the negative developments in new orders. The fall to 42.1 points, the lowest level since the autumn of 2001, is even the sharpest decline in the history of the Purchase Managers' Index. The negative global business environment is having a strong adverse impact on the development of Austria's industrial companies, reflected in this September's unprecedented decline in the index for new export orders. "As a result of the unfavourable global conditions, demand for exports is no longer driving the Austrian economy, and has consequently lost its role as the engine of growth“, says Bruckbauer.
The slump in demand has prompted the sharpest fall ever in the index for orders, to a level not seen since the index was launched. Austria's industrial companies responded immediately by adjusting capacity. "In September, output was reduced more than in previous months and there are now further signs that the weakness of Austria's industry has entered a prolonged phase. This has in turn led to further job cuts“, says Walter Pudschedl, an economist at Bank Austria.
According to Bank Austria's economists, a number of other factors suggest that the difficult conditions faced by industry will extend over a longer period, and a turnaround will take place later than originally expected. The difficult global business environment has prompted Austria's industrial companies to act with greater caution and has sharpened cost awareness. In September this was reflected in an initial reduction of stocks of purchases in the current business cycle, a development which was accompanied by a sharp acceleration of the decline in the quantity of purchases. The index slid to its lowest level ever in September. Companies were nonetheless somewhat surprised by the slump in demand, triggered partly by the cancellation of orders, because stock reductions of finished goods had slowed although purchases had been adjusted.
The increase of input prices eased markedly as a result of the sharp fall in oil prices, while the rise of output prices slowed only moderately. Profit margins consequently improved slightly. "The positive price trends were overshadowed by the decline in sales due to weaker demand, so that Austrian industrial companies derived little benefit from these more favourable developments“, says Pudschedl.
The current Purchase Managers' Index of Bank Austria underlines the fact that the short-term prospects for Austria's industry are not rosy. The recent reports on the US financial crisis make an improvement of global conditions seem increasingly unlikely. The impetus needed by Austrian industry will therefore not be forthcoming, also because the high inflation rate will largely prevent any revival of domestic demand, at least in the medium term. After the good start to the year, Austrian industry grew by over 3 per cent in the first seven months of the year, but in the last three months there have been clear signs of a slowdown. Industry will therefore probably stagnate in 2008 as a whole. Nor is it likely to experience any significant momentum in the first half of 2009. "Austria's industry will be unable to provide any impetus to economic growth before the middle of next year. We therefore expect economic growth in Austria to slow to 1.2 per cent in 2009 from 2 per cent in 2008“, says Bruckbauer. The storm clouds approaching from the West prompt Bank Austria's economists to point to a clear downside risk.
Note: PMI figures above the 50.0 mark indicate growth in the manufacturing sector 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 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
Walter Pudschedl, Tel. +43 (0)5 05 05 ext. 41957;