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29.06.2009

Bank Austria Purchase Manager's Index in June:
Turnaround of Austria's industry increasingly likely in the summer

  • Bank Austria Purchase Manager's Index points to a slowing of the downturn in June
  • Decline in new orders, stocks of finished goods and output lose momentum
  • Layoffs remain at a high level
  • Industry poised for stabilisation but a clear recovery is not anticipated

In June, the seasonally-adjusted Bank Austria Purchase Manager's Index (PMI) improved markedly from 39.3 to 42 points. The indicator has now been pointing upwards for the third consecutive month. A clear upward trend of this kind was last seen at the turn of the year 2005/2006, although the indicator was at that time pursuing a path of sound growth. However, the indicator is today still well below the 50-point threshold despite the sustained and strong upturn throughout the second quarter of the current year. "Despite improving to 42 points, the current Bank Austria Purchase Manager's Index reflects a further decline of Austria's industrial output. While the rate of contraction has slowed considerably, the downturn has not yet hit bottom", says Stefan Bruckbauer, Bank Austria's Deputy Chief Economist, "The most recent data suggest that Austria's industry could experience its turnaround in the summer".

The current survey among Austrian purchase managers shows that the country's industrial sector is on the way to a broadly-based recovery. Although almost all partial indices have risen sharply in June, they are still below the 50-point growth threshold. In June, new orders declined much more slowly. Foreign demand, in particular, contracted only moderately; it is now primarily the deterioration of the economy in Central and Eastern Europe which is exerting downward pressure on the index. "The improvement in orders has led to a slower decline in output in June. The output index has climbed to 45.2 points, the highest level in over nine months", Bruckbauer explains.

The decline in new orders is currently slowing much faster than the backlog of work. This suggests that there is still a need for Austrian industry to adapt existing capacity to the weak economic situation. The employment index is the only component of the Bank Austria Purchase Manager's Index which has not improved in June. "The shedding of jobs in Austrian industrial companies has accelerated, and there are no signs that the employment situation will change in the immediate future. The layoffs will continue for some time on account of the low capacity utilisation levels when orders and output pick up again", explains Bank Austria economist Walter Pudschedl.
Bank Austria's economists believe that the unemployment rate could rise to as much as 7.6 per cent (2008: 5.8 per cent) in 2009, and subsequently to 9 per cent in 2010.

Expectations of an imminent turnaround in Austria's industry are based on the encouraging upturn of most components of the Bank Austria Purchase Manager's Index, and especially on the development of stocks. The particularly strong reduction of stocks in the last few months shows that output was in some cases throttled more than may have been required by the slump in demand. In June, stocks of finished goods continued to be reduced at a record pace. The correlation between the index for new orders and the index for stocks of finished goods, always a reliable indicator of industrial growth, has now risen to 1.14 after falling to an all-time low of 0.54 in December. This is the highest level since the beginning of 2007, when the PMI was well above the growth threshold. "We believe the recession in the industrial sector will soon be over because manufacturing companies will need to adjust production to demand and will soon have to replenish empty stocks. However, there is still the risk that demand will not rebound sufficiently in the coming months to trigger a sustained upturn in the output cycle in the industrial sector, and that the anticipated stock replenishment effect fizzles out like a flash in the pan", says Pudschedl.

Bank Austria's economists maintain that even if the performance of Austrian industry were to stabilise in the immediate future, it would be wrong to hope for a sound recovery in the subsequent period. "We should not be overly optimistic because the global economy is still in a weak condition; there are no signs yet of an impeller of economic activity for Austria's export-dependent industrial sector. After the catastrophic start to 2009, industrial output will contract by an average 12 per cent or so in real terms in 2009, and record only very moderate growth in 2010", says Stefan Bruckbauer.

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.

 charts (PDF; 27 KB)

Enquiries: Bank Austria Economics & Market Analysis
Walter Pudschedl, Tel. +43 (0) 50505 - 41957
e-mail: walter.pudschedl@unicreditgroup.at

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