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30.03.2009

Bank Austria Purchasing Managers' Index in March:
No spring awakening in Austria's industry

  • Renewed fall of the Bank Austria Purchasing Managers' Index in March
  • Continued slack orders accelerate decline in output
  • Cost pressures lead to record shedding of jobs
  • Cost of production materials and services much lower, sales prices also fall
  • Demand for exports is the decisive factor: no industrial growth before 2010

The situation of Austria's industrial sector continues to deteriorate. The seasonally-adjusted Bank Austria Purchasing Managers' Index (PMI) fell further in March and at 33.7 points it is now only slightly above the all-time low of January. The indicator has now been below the 50 mark, which denotes a slowdown, for one year. "Austria's industry has been experiencing a downturn for twelve months, and the rate of decline has been steadily deteriorating" says Stefan Bruckbauer, Bank Austria's Deputy Chief Economist. The most recent values of the Purchasing Managers' Index point to the beginning of a consolidation process in the pace of the downturn. "Austrian industry is contracting at the beginning of the spring; it is only the momentum of the downturn that is starting to settle at a stable level“ Bruckbauer continues, adding: "There are no signs of a consolidation or recovery of the industrial sector.“

Bank Austria's economists believe that Austria's industry will still be facing very difficult times before the downturn hits bottom. In March, the survey results deteriorated across all industrial sectors. Orders on hand in Austrian industry are dwindling and new orders are scarcer. The growing contraction is particularly noticeable in foreign demand. It is therefore not surprising that in March, industry throttled output more than in the previous month. The corresponding index fell from 36 to 35.4 points.

In order to hold their ground in this difficult economic environment characterised by sharply declining demand, Austria's industrial companies have resorted to rigorous cost-cutting measures. Besides limiting new investments to a bare minimum and curbing expenditure by renegotiating their agreements with suppliers, companies have been adjusting their workforce to the lower output levels for the last eleven months. "March has seen jobs being shed at a new, unprecedented rate. Job cuts have taken place in 43 per cent of the companies surveyed, only 3 per cent of respondents said that they had taken on additional staff" Bank Austria economist Walter Pudschedl said following disclosure of the latest survey results. The number of salaried employees in Austrian industry is currently more than 3 per cent below the level of the previous year. Styria, Salzburg and Burgenland have so far registered the strongest declines in employment among Austria's federal provinces. This development has been accompanied by a sharp rise in unemployment in this economic sector. Year on year, the number of persons who have lost their jobs in industry (including small and medium-sized businesses) has risen by as much as 35 per cent; the number of people who became unemployed was disproportionately high in Upper Austria, Salzburg and Vorarlberg.

With prices for some production materials – especially steel and oil – falling significantly, Austrian industrial companies were in March faced with the strongest decline of purchase prices since the respective surveys were first launched over ten years ago. While the easing of cost pressures benefits input costs, this does not result in any significant improvement in overall conditions as orders remain sparse. Manufacturers are faced with even tougher competition due to weak demand, a situation they try to counter by lowering sales prices. In March, sales prices fell at a record rate. "In the current situation, with the prices of some production materials falling sharply, Austrian companies have no possibility to improve profitability. On the contrary, the decline in demand in some cases obliges them to sell at prices which no longer cover their operating costs" says Pudschedl.

Industry extends its winter hibernation
The Bank Austria Purchase Managers' Index of March underlines that a turnaround of the slowdown experienced by Austria's industry is not yet in sight. The outlook has deteriorated considerably as a result of the thin order books and the dramatic decline in new business. In view of the further deterioration of economic conditions in Europe's key markets, most notably Germany and Italy, the downturn of Austria's industrial sector will not reach its low point before the second half of the year. "While the government's economic support measures and the easing of monetary policy by the ECB are supportive, it is the development of global export demand which is key for a sustained upswing of Austrian industry. Conditions in Austria's industrial sector will improve only when the country's major trading partners succeed in overcoming the recession and demand for Austrian products and services picks up again“ says Bruckbauer. Bank Austria's economists expect industrial output to decline by over 6 per cent in 2009 following growth of 1.6 per cent in 2008.

 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)5 05 05 ext. 41957;
e-mail: walter.pudschedl@unicreditgroup.at

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