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30.05.2011

Bank Austria Purchasing Managers' Index in May:
Industrial growth in Austria cools down

  • Production expansion tapers off, bringing the Bank Austria Purchasing Managers' Index down in May for the third month in a row
  • Barely any increase in export order volumes – total order growth slowing too
  • Employment growth still robust, but losing pace
  • Improved correlation between purchasing and sales prices thanks to correction of some commodity prices
  • Industry to grow around 6 percent in 2011 thanks to robust start to the year

"Austrian industry in May found itself facing even more subdued trends in new orders compared to the previous month, especially in the export sector. Rates of expansion in production are slowing down. The pace of new employment growth remains high", says Bank Austria chief economist Stefan Bruckbauer, summarising the results of the latest survey conducted among purchasing managers in Austria. Industrial economic activity has been slowing down month by month after a strong start to the year. "Another decline in Bank Austria's purchasing managers' index from 57 to 55.6 points in May finally underlined the fact that industrial activity has passed its peak. After what was a particularly dynamic start to 2011 with average gains in production of 11.5 percent from January to March, Austrian goods manufacturers are now navigating somewhat calmer waters", according to Bruckbauer. Nonetheless, with a figure clearly in excess of the 50-point threshold between contraction and growth, the purchasing managers' index makes it clear that the sector is still in rude health.

This cool-down in industrial activity is a broadly-based trend. Practically all of the components trended downward, especially the production index that slumped rather sharply. In May the index dropped to 55.5 points, which means it is at its lowest level for 18 months. "In terms of expanding production activities, Austrian industrial businesses were much more restrained in May than in previous months. The weaker trends in new orders weighed down on performance", explained Bruckbauer. Above all, the very robust upwards trend in external demand has stalled. The decline in the index for export orders to 50.3 points in May shows that this is nearly at a standstill. There has been a marked decline in the support provided to Austrian industry by the international economy.
 
The slowdown in industrial growth is also starting to be reflected in employment trends to some degree. "The rate at which new jobs are being created decreased slightly in May, but many new jobs are still being created by Austrian industry every month", explained Bank Austria economist Walter Pudschedl. For more than a year now, Austrian production companies have steadily been increasing their headcounts. Seasonally adjusted, employment in the goods industry in this period has risen from less than 560,000 to more than 570,000. Employment is now more than 2 percent higher in the sector than its low from late 2009 / early 2010.

The slowdown in the pace of growth in the production sector and the more subdued sentiment around the globe do not just spell bad news. The upwards trend in commodity prices has now ground to a halt. "The increase in input prices for primary materials contracted sharply in May. By contrast, the fact sales prices have continued to rise only demonstrates that customers are bearing more of the impact of the higher costs. The income position of businesses in May tended to be somewhat better than in previous months", revealed Pudschedl. Aside from temporary price corrections on the commodity markets, input prices will continue to weigh down on Austrian industrial companies in the course of 2011.

Based on the continued decline of the Purchasing Managers' Index, the economists of Bank Austria believe this phase of much more restrained growth for Austrian industry is likely to prevail for what remains of the year. This is backed up by the renewed fall in the ratio of "new orders" relative to "inventories". This ratio barely in excess of 1 sends a clear signal that based on existing inventory capacities the strength of demand will only trigger a very gentle increase in production in the coming months. However, supported by the international economy the growth in Austrian industry continues at a respectable pace, and there is no major setback on the horizon. "Annual growth rates for industry in the second half of 2011 will clearly fall short of the double-digit figures registered in previous months. Nevertheless, we assume that industrial output over the entire year will come in at 6 percent. This means the sector will stay the main driver of GDP growth, which we expect will total 3.1 percent in 2011", said Bruckbauer, in conclusion.

 tables (PDF; 88 KB)

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.

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

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