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30.07.2012

Bank Austria Purchasing Managers’ Index in July:
Austria is no blissful oasis: Industry under significant pressure

  • Bank Austria Purchasing Managers’ Index falls from 50.1 points to 47.4 points in July – industrial activity in Austria contracts for the first time this year
  • Production output declines dramatically: Drop of 6.4 points compared to the previous month is the steepest fall since the inception of the Bank Austria Purchasing Managers’ Index
  • Drop in orders – especially foreign orders – leads to a persistent decline in employment figures
  • Significant declines in purchasing volumes, shorter delivery times and slight drops in selling prices signal a long-lasting slowdown in industry
  • Outlook: No noticeable improvement expected in the second half of the year; Austrian industry will only pick up again once the Eurozone stabilises

Austrian industry has started the second half of 2012 with a significant decline in production, as shown by the Bank Austria Purchasing Managers’ Index in July. "Austrian industry is no longer immune to the dramatic economic slowdown in the Eurozone. The Bank Austria Purchasing Managers’ Index saw a noticeable decline for the fifth time in a row in July. This time, the index fell below the growth threshold of 50 points to 47.2 points," said Stefan Bruckbauer, chief economist at Bank Austria, describing the latest developments. This means that for the first time this year, Austrian industrial production is declining, but the drop itself was extremely drastic as well. "While in June the majority of industrial companies were still reporting increases in production, the companies reporting declines in production dominated in July," said Bruckbauer, adding, "Never before in the history of the indicator, which was introduced in 1998, have Austrian industrial companies reported as steep a decline in production growth as they did this July." The indicator for production output fell from a still very positive level of 54.2 points in June to 47.8 points, which is a clear indication of a recession.

The decline in production growth, along with the drop in new orders, led to a fall in employment figures in Austrian industrial companies in July. "Due to the deterioration of the orders situation, the job cuts in industry have reached the same pace in July as at the beginning of 2010. This strong decline in orders – with a particularly steep drop in foreign orders – and the subsequent reduction in employment numbers are signs of an extended period of weakness for industrial companies," said Walter Pudschedl, an economist at Bank Austria.

In line with the noticeable decline in industrial growth is also the further shortening of delivery times and the ongoing reduction of input material inventories – although the decline in July was not quite as rapid as in June. "Shorter delivery times and considerably lower purchasing volumes are also a clear sign of economic weakness," said Pudschedl. Most industrial companies reported a decline in purchasing volumes and thus confirmed the poor expectations. The fact that selling prices once again fell slightly in July also fits in with this scenario. Purchasing prices dropped even more dramatically than selling prices due to declining commodity prices. Companies can therefore expect at least a slight improvement in earnings due to the fact that their costs fell even more dramatically than their selling prices in July. Due to the opposite development in recent months, however, this is not likely to bring much relief.

In light of the declining sentiment indicators in other Eurozone countries as well, the economists at Bank Austria do not expect a noticeable acceleration in Austrian industrial production in the coming months. The drops in the German Ifo index and now also in the Austrian Purchasing Managers’ Index confirm that the weak growth in several Eurozone countries is now also dragging down other economies. "Weak growth and uncertainty with regard to the Eurozone are now taking their toll on the entire region. This should increase the willingness of all the countries to quickly implement functional solutions," said Bruckbauer, adding, "The rapid decline of the Bank Austria Purchasing Managers’ Index shows that Austria is also not a blissful oasis that is immune to economic conditions." Only once feasible solutions improve the outlook for the Eurozone will industry become more optimistic again. The economists at Bank Austria expect this to occur – and believe that it must occur – over the course of the second half of 2012. “The earlier policymakers set measures to stabilise the Eurozone, the quicker they will prevent it from plunging into a deep recession,” concluded Bruckbauer.

 charts (PDF; 84 KB)

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

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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