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29.04.2009

Bank Austria Purchase Manager's Index in April:
Sharp downturn of Austria's industry loses momentum

  • Bank Austria Purchase Manager's Index is up in April, but downturn continues
  • Although shedding of jobs eases, prospects remain bleak
  • Improvement in the ratio of new orders to inventory increases prospects of a turnaround
  • Economy will not hit bottom before the summer; slow recovery in 2010

"We are seeing initial signs of an imminent stabilisation of Austrian industry. The seasonally-adjusted Bank Austria Purchase Manager's Index (PMI) has clearly moved upwards in April" remarked Stefan Bruckbauer, Bank Austria's Deputy Chief Economist. The indicator rose from 33.7 in March to 39 points, its highest level in six months. Nevertheless, the indicator is still well below 50; a reading of 50 or more indicates expansion. "The situation in Austrian industry remains very serious. Although the downturn has slowed, the low point has not yet been reached" Bruckbauer continues.

For the first time in eight months, all partial components of the Bank Austria Purchase Manager's Index have improved. This supports cautious optimism that the situation may consolidate in the second half of 2009; at present, however, all components are still moving below the growth threshold. Output declined further in April, although the rate of decline was much slower. The index's rise to 40.6 points is even the strongest increase since the PMI was first launched.

The shedding of jobs has also lost momentum in April in line with the slower decline in output. Nevertheless, according to Bank Austria's economists labour market prospects are not good. As an economic factor that responds with a time lag, unemployment will rise sharply in the next few months as output continues to decline and the agreed periods for short-time working are due to come to an end in the forthcoming months. "The labour market will not be hit by the impact of the economic crisis until 2010. We expect the average number of unemployed persons to rise to well over 300,000 and unemployment is likely to amount to 8.4 per cent, the highest level in 55 years" says Walter Pudschedl, economist at Bank Austria. Only subsequently will the labour market experience a turnaround, although rationalisation measures and moderate investment activity will further delay the possibility for the labour market to benefit from any positive effects in the industrial sector.

The backlog of orders in industry continues to contract steadily with demand for products of Austrian manufacturers still falling sharply. In particular, orders from abroad, first and foremost Germany, are shrinking further in light of the exceptionally difficult economic situation in Austria's key markets. But some encouraging signals are now discernible, for the first time in one year. The sharp fall in new orders from both domestic and foreign companies has slowed considerably in April. And stock reductions of primary materials and finished goods have lost only a little of their momentum.  "The ratio of new orders to inventory, previously a significant indicator for assessing the condition of industry, has risen strongly to its level seen a year ago" says Pudschedl, adding: "This is good news because companies will increase output as soon as demand rebounds, since the stronger demand can no longer be met via stocks". In view of these developments it is not surprising that delivery periods declined slower in April than in the previous month.

The first quarter of 2009 will be remembered as one of the worst in Austria's industry. The first two months alone saw a double-digit decline in output over the previous year. The current Bank Austria Purchase Manager's Index points to a continuation of the downward trend, but the rate of decline has slowed considerably. The encouraging development of some components supports the belief that the downturn could start to stabilise very soon and develop into a sideward movement. The recession of the industrial sector is however unlikely to reach its low point before the summer. Bruckbauer summarises Bank Austria's appraisal of the current situation of Austria's industry: "In 2009 we could see industrial output contract by well over 10 per cent, and in light of globally weak demand and only moderate investment activity, expectations of a subsequent sustained recovery are very low".

 charts (PDF; 11KB)

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;
 e-mail: walter.pudschedl@unicreditgroup.at

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