Bank Austria Purchasing Managers' Index for October:
Sharp fall in orders hits Austrian industry
- For the second month in a row, the Bank Austria Purchasing Managers' Index has recorded a figure below the growth threshold of 50 points, ending October on 48 points
- Austrian products see sharp fall in demand both at home and abroad, with manufacturing output continuing its decline
- Slower growth in industrial demand has had a marked impact on the latest price trends, with purchasing and selling prices falling for the first time since mid-2009
- Industry slides back into shallow recession, but backlog of orders from the first half of the year set to underpin the 7 per cent whole-year forecast for industrial growth
- Outlook for 2012: downturn only temporary, with a 3 per cent increase in production a realistic prospect despite moderate growth
Industry, very much the engine driving the economic recovery over the past two years, is increasingly beginning to stutter. As regards the single figure covering the results of the monthly survey of the economic situation facing Austria's industry, Bank Austria's chief economist Stefan Bruckbauer said: "The Bank Austria Purchasing Managers' Index fell a further 0.7 point in October. At 48, the indicator is below the growth threshold of 50 points for the second month in succession." Going on to describe the current state of industry, he commented: "The main reason why business performance has trended downwards on the previous month lies in the sharp decline in new business, which translates into fewer orders on hand, falling purchasing prices and a lower purchasing volume. Manufacturing output continued to drop, although employment was up slightly."
In October, Austrian industry was faced with marked falls in demand caused by increasing concerns over the state of the economy and growing uncertainty amongst key economic players as a result of the European sovereign debt crisis. These factors contributed significantly to the drop in the Bank Austria Purchasing Managers' Index. "With customers increasingly deferring their investment decisions due to the uncertain environment, Austrian industry has had to contend with a sharp fall in demand. Demand from both at home and abroad declined at a rate last seen two-and-a-half years ago," said Bruckbauer.
In October, industrial companies cut manufacturing output once again as a result of a fall in new business. Bank Austria economist Walter Pudschedl said: "The rate of production cutbacks slowed slightly in October, with companies focusing on working off their order backlogs. Orders on hand have thus fallen sharply to a level not seen since spring 2009." Slower demand growth in industry has had a marked impact on the latest price trends. "October saw both purchasing and selling prices fall for the first time in around two years," added Pudschedl. "Sluggish global demand has cut the purchasing prices of primary and raw materials, in particular those of many metals but also of energy. At the same time, selling prices have come under pressure due to the supply surplus, which has in turn cut producers' pricing power." Bank Austria economists estimate that, on average, the impact of changes in purchasing and selling prices was neutral in terms of the earnings situation of Austrian companies in October.
"Although the Bank Austria Purchasing Managers' Index is indicating a continuation of the downward trend in October, Austrian industry remains in good shape. The favourable economic backdrop over the past two years has kept order books at a healthy level despite some falls, and Austrian industry is working at high capacity," said Bruckbauer. In October, this was also suggested by the fact that the sector, boosted by efforts to work off their backlogs more quickly, actually created new jobs. Nevertheless, the latest survey highlights that Austrian industry is now well past its economic peak and must expect business to worsen persistently over the coming months. The current ratio of order to inventory trends – the most reliable indicator of development in the coming months – worsened significantly in October and is now at the same level as in October 2008, shortly after the collapse of Lehman Brothers. "Based on the latest survey results for the Bank Austria Purchasing Managers' Index, we have to assume that Austrian industry will slide into a shallow recession. Nevertheless, as a result of the backlog of orders from the first half of the year, we are still expecting robust industrial growth of 7 per cent for 2011 as a whole", said Bruckbauer.
Austrian production companies will find the early part of the new year a tough challenge, however, meaning that the forecasts for 2012 are very modest despite an expected upturn in demand later in the year. In addition to the producers of primary materials, most areas of the capital goods industry will also lose significant momentum compared to 2011. According to the latest growth forecasts for the key target countries, weighted to take into account the specific sales structure in individual sectors, all major industrial sectors will see their production growth halved at the very least. Bruckbauer summed up the prospects for Austrian industry in 2012 thus: "Overall, however, Austria's industry will not experience a sustained downturn in 2012, and production growth of 3 per cent is possible. In particular, the ability of many sectors to compete successfully on the international stage should ensure that the industry-led upturn of the past two years will soon be back on track."
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Enquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0) 50505 - 41957;
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.
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