Bank Austria Purchasing Managers’ Index in March:
Industry continues to grow strongly, pace slows down
- Bank Austria Purchasing Managers' Index records a slight contraction in March, yet second highest result measured
- Huge production expansion, new orders decrease slightly
- Prices showing a better trend in the sector for the first time in months
- Industrial growth remains very dynamic in 2011, increase of 6 per cent expected
- The Austrian federal states of Upper Austria and Vorarlberg with their diverse industry have the advantage in 2011; growth difference within Austria levels off
Austrian industry has started to see a slowdown in its rate of growth. Bank Austria chief economist Stefan Bruckbauer comments, "The Bank Austria Purchasing Managers' Index fell slightly in March from the high of the previous month; however, at 60.6 points it still reached the second highest value ever recorded. The growth in new orders continues to be very high, albeit slower, and employment growth has lost momentum. Production, on the other hand, increased more sharply in March than in the previous month and the ratio of purchasing prices to sales prices for industry improved for the first time for many months."
Demand for Austrian industrial products continues to increase very sharply from both home and abroad. As orders have been increasing sharply for some time, production was once again expanded hugely in March. "The output index rose to 61.2 points in March. This is the sharpest increase in production for a year and the second sharpest overall in the index's 13-year history," says Bruckbauer. The slight fall in the rate of new business scarcely spoils the picture for the time being.
While growth in production proved exceptionally high in March, some other survey indicators, however, point to a slowing-down in the increase in demand in industry. "The decreasing pace of the rise in new business as well as ever-increasing stock levels are indications that Austrian industry may have already passed through the most dynamic growth phase," explains Bank Austria economist Walter Pudschedl.
One trend that has improved for industrial companies compared with previous months can be seen on the price front. "Purchasing prices continued to increase at a fast pace in March due to the upward trend of raw material prices, but manufacturers were better able to build the increased costs into sales prices. For the first time in six months, the earnings situation has, therefore, generally eased again somewhat," explains Pudschedl. Nevertheless, the pressure on costs is still great as, alongside the continuing favourable trend in demand, the uncertainty linked to the crises in North Africa, among other things, is keeping raw material prices high.
Despite some signs that show clearly that growth in the sector may have already peaked industry is maintaining an extremely fast pace. The order situation is improving and the backlogs of orders in hand are growing strongly. The correlation between incoming orders and inventories is slightly below that of previous months, but remains positive. In the past, this has been a reliable indicator of a sustainable dynamic industrial development. "In spite of the increasing risks, such as the noticeable upward movement of prices, the growing uncertainties linked to the situation in North Africa and in Japan following the earthquake and its affects on the production chain, the current Bank Austria Purchasing Managers' Index indicates clearly that domestic industry will sustain a strong upward trend in the coming months. We are keeping to our forecast of 6 per cent growth for the sector in the current year, after 6.7 per cent in 2010," says Bruckbauer.
He continues: "In our opinion, the most favourable prospects for growth in the current year are in mechanical engineering and metal goods manufacturing, which will grow more strongly in real terms than in the previous year, with an increase in production of 10 and 8 per cent respectively. The vehicle industry is also continuing to experience a strong tailwind, but with an increase of 9 per cent in 2011 will fall short of the strong result in the previous year." As the upward trend is increasingly moving from the capital goods sector to consumer-oriented areas, industrial growth will be more balanced sector-wise in 2011 than in 2010. Also, from a regional point of view, industrial dynamism in Austria will be better balanced due to the altered conditions. In 2010, the states with a strong focus on sectors affected by economic cycles, such as Carinthia and Styria, posted very high industrial growth of 17 and 14 per cent respectively, whereas the more consumer-goods-oriented industries in Lower Austria and Vienna only experienced a relatively restrained recovery. "In 2011, states with more diverse industry, such as Vorarlberg and Upper Austria, have the best opportunities for growth. Although Vienna and Lower Austria will lag somewhat behind for the time being, the gap between them and the regional leaders in industrial growth will be considerably reduced," says Bruckbauer.
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Walter Pudschedl, Tel. +43 (0)5 05 Ext. 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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