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29.01.2009

Bank Austria Purchase Manager's Index in January:
Austrian industry increasingly impacted by the crisis

  • Bank Austria Purchase Manager's Index falls to new low in January
  • Continued slump in output swells surplus manpower
  • Current price trends afford slight relief
  • Stabilisation of new orders raises hopes that the downturn will soon hit bottom

The downturn experienced by Austria's industry has continued in the new year. In January, the seasonally adjusted Bank Austria Purchase Manager's Index (PMI) fell to 33.1 points from 35 in the previous month. This represents a new historic low since data first began to be collected more than ten years ago. Since leaving the PMI's "growth zone" in April last year, the index is now reflecting negative growth for the third consecutive quarter. "After declining rapidly towards the end of 2008, the Bank Austria Purchase Manager's Index has still not been signalling a recovery of Austria's industrial sector since the turn of the year. The sharp downturn is a little less pronounced", says Stefan Bruckbauer, Deputy Head of Bank Austria's Economics Department.

Reduction of output leads to surplus manpower
Bank Austria's economists believe that the rapid downturn experienced by Austrian industry will continue for the time being. In January, the index for output fell much faster than the overall index, reaching a new low of 31.4 points. Whereas the lower output levels did not require any adjustments to staffing levels in the initial stages of the downturn, the number of employees has fallen below a critical capacity level in a growing number of companies. "Surplus manpower is now resulting in the increased shedding of jobs, over and beyond a reduction of loan workers", Bruckbauer asserts.

According to seasonally adjusted data, the employment trend in Austrian industry, which has been pointing upwards in the last few years thanks to the outstanding performance of Austria's export sector, has now reversed. Bank Austria's economists are expecting the number of people employed in the industrial sector to shrink by an average of about two per cent or 15,000 persons in 2009. "The workforce in the Austrian economy as a whole will also fall slightly in 2009. The unemployment rate will rise markedly from 5.8 per cent in the past year to 6.7 per cent in 2009. About 30,000 persons will lose their jobs", predicts Bank Austria economist Walter Pudschedl.

Input prices fall sharply, output prices decline more slowly
In January, Austrian industrial companies benefited from a sharp decline in input prices as prices for primary materials and commodities fell – a trend that was accompanied by a marked fall in procurement volume. While output prices also declined for the third month in succession, the extent of the decline was much less pronounced. The gap between input and output prices has been widening since the middle of 2008, something which has moderately supported the profitability of companies in this difficult economic situation. "Weak demand however limits the ability of Austrian industrial companies to push prices through, and this has negative implications for a company's future costs and profitability", Walter Pudschedl maintains.

Downward spiral is broken
For the first time since the sharp downturn, the current survey also reveals some cautious optimism. This is the first time since August of the previous year that the slump in new orders has not deteriorated. While this is attributable to domestic demand, new export orders are now also declining much more slowly. The ratio of new orders to stock of finished goods, in the past a very meaningful indicator for assessing the performance of the industrial sector, has improved for the first time in six months. Nevertheless, one should not be overly optimistic since long phases of downturns in the past were also briefly interrupted by counter-movements that lasted one month or more. The downward risk for Austria's industry therefore remains very high. The financial crisis is not yet over and the leading indicators of Austria's key trading partners have so far hardly shown any signs of a turnaround. The last few months have moreover seen a significant deterioration in the business environment of Eastern Europe's growth markets, which are very important for the Austrian economy. The end of the free fall of Austria's industry that is suggested by the most recent survey nevertheless provides a glimmer of hope that the downturn may soon reach bottom. "Even if the downward spiral has been broken, a recovery is still a long way off. Expectations that the economy will stabilise in the second half of 2009 are now in any event supported by this initial development ", Bruckbauer concludes. Given the strong contraction in industrial output, Bank Austria's economists however still assume that GDP will decline by 1.3 per cent in 2009.

 charts (PDF; 37 KB)

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) 50505 ext. 41957;
 e-mail: walter.pudschedl@unicreditgroup.at

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