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27.06.2008

Bank Austria Purchasing Managers' Index in June:
Austrian industry veers off growth trajectory

  • Bank Austria Purchasing Managers' Index sinks in June to 6-year low
  • Slow order intake pulls production down
  • Dynamic growth in prices becomes challenge for businesses
  • Economic activity muted in Q2 – foretaste of more subdued H2 to come

In June the Purchasing Managers' Index (PMI) of Bank Austria continued its decline. After a small breather last month the index fell to 48.4. This is therefore the third month in a row that the 50-point mark, the growth threshold, has been missed. "Consistently failing to reach the growth threshold means that for some months now industry has not been able to fulfil its long-standing role of driving the Austrian economy. The particularly sharp fall in June to the lowest level in six years also reveals that the trend in the second quarter is only the beginning of a significant downturn in economic activity", says Stefan Bruckbauer, deputy chief economist at Bank Austria, giving his interpretation of the current index. This gloomier economic outlook is corroborated by the fact that almost all of the sub-components of Bank Austria's Purchasing Managers' Index headed downwards in June. Consequently, there has been a broad deterioration in the business situations of Austrian industrial companies.

For the first time in three years, production output fell in June for Austrian industry after companies received fewer new orders for the third month in a row. Both demand from Austria and abroad have sharply declined. The deteriorating international conditions have significantly hampered the export opportunities of Austrian industry. "The slowdown in global growth and the strong euro now constitute considerable hindrances for industry that relies on exports, and business with the USA in particular is having a hard time of it at present", says Bruckbauer. The Bank Austria economists believe that the decline in pending orders is yet another sign that economic activity is slowing in industry.

Difficult times lie ahead for Austrian industry, especially since coping with high and rising costs will constitute an increasing challenge in the context of corporate earnings. The pick-up in purchase prices gained more momentum in June. At more than 70 this is the highest figure in over one and a half years, with the main culprits being the record oil prices, but also the surges in prices of energy, metals and plastics. This has prompted domestic industrial firms to raise their sales prices too. Nonetheless, the increase in sales prices fell short of the rise in purchase costs. "Against a backdrop of weakening demand, companies are clearly not able to fully incorporate the high cost increases in their sales prices", explains Bank Austria economist Walter Pudschedl.

In June, in light of the decline in new business and the cool-down in production, the fall in employment in Austrian industry, which began in May, just continued – and at a greater pace. "Industry has currently conceded its role as the job machine of the Austrian economy, which slowly heralds a turning point on the Austrian labour market as a whole", says Pudschedl.

The Bank Austria Purchasing Managers' Index confirms that following the strong start to the year, the signs of fatigue in Austrian industry and therefore in the entire economy have become more accentuated towards the end of the second quarter. 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 nothing but subdued development in what remains of the year. However, since the US housing crisis and the turmoil on the financial markets have had a relatively mild impact on the real economy in Europe, at least so far, and the prospects for the US economy have not worsened, the Bank Austria economists do see at least a dim light at the end of the tunnel, both in terms of how long the current downturn will last and how deep it will go. "Austrian industry will not suffer any setback; instead, after the current decline tapers off it will pick up again in the course of 2009 and provide considerable support to more upbeat economic activity and trends", says Bruckbauer, optimistically. Nevertheless, the Bank Austria economists anticipate economic growth in 2009 will total just 1.8 percent.

 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 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) 50505 Ext. 41957
E-Mail:  walter.pudschedl@unicreditgroup.at

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