Bank Austria Purchasing Managers' Index in August:
Weak demand slows Austrian industry
- Bank Austria's Purchasing Managers' Index drops in August to lowest reading since mid-2009 at 46.7 points; growth horizon no longer in sight
- Fall in orders, now in Austria too, has reduced production output
- Declining employment, falling delivery times and lower input prices
- Downward trend stabilising: a setback the likes of 2008 not likely
- Outlook: Few impulses expected in the second half of the year, so industry will barely grow throughout 2012, but prospect of revival in 2013 if uncertainty dies down following political solution to euro crisis
Austrian industrial activity began to cool down rapidly at the start of the summer. However, there are now signs that this downward trend is slowing and stability is beginning to return. "The decline in the Bank Austria Purchasing Managers' Index, which began at the start of the year, slowed in August when the indicator came in at 46.7 points, down from 47.4 in the previous month. This means that for the second month in a row the indicator shows that Austrian industry is contracting", explained Stefan Bruckbauer, chief economist at Bank Austria. The tricky European economic climate is increasingly having a negative impact on Austrian industry. "Domestic orders also took a hit in August; production output decreased again and jobs were lost. That said, an increase in sales prices and a modest decline in sales inventories coupled with a slowdown in the individual component indicators across the board suggest that industrial activity is already stabilising", said Bruckbauer. While Austrian industry is under pressure from the challenging international climate, to the extent it has now fallen off its growth trajectory from the last 2½ years, based on the latest results from the survey among Austrian purchasing managers we do not expect to see a setback as severe and as sustained as in 2008/2009.
Thinning order books is the most visible sign of the weakening economic position of Austrian industry. Although we are now seeing some consolidation in external demand for Austrian goods in August after a decline since March, the demand from Austrian clients has recently fallen sharply. The order backlogs that companies can rely on are therefore depleting rapidly. "Given the deterioration in incoming orders we have noted a tangible decline in the production output of Austrian companies in August. However, the mild increase in the production index to 48.4 points shows that the pace of the decline has already started to slow", revealed Bruckbauer.
The drop in production has once more led to job losses. "For the third month in a row the industrial companies surveyed downsized in August, and at an increasing rate", said Bank Austria economist Walter Pudschedl. Between January and July, employment in Austrian industry rose by an average of 1.9 percent yoy. By the end of the year this average growth is set to fall to roughly 1½ percent given the negative trend at present. This means that looking at the yearly average more than 580,000 people will be employed in the sector, approximately 10,000 more than in the previous year but still fewer than before the crisis in 2008/2009. According to the economists at Bank Austria, the stable development in the services sector will result in a new employment record for the whole economy in 2012 – despite the slower growth in the current year – coming in at around 3.46 million.
Input prices declined again in August, albeit not as much as in the previous month. While development was hindered by the high crude oil prices caused by the weak euro, many other commodities, such as some metals for example, became cheaper given the subdued global economic activity. "Input prices fell sharply in August for the third month in a row, but despite the weaker demand, Austrian industrial companies still managed to charge higher sales prices than in the previous month. This means that earnings in the sector improved overall", said Pudschedl, analysing the situation.
The current fall in the Bank Austria Purchasing Managers' Index confirms the international expectations for Austrian industrial companies that have been weak for some months now, and reveals the high level of uncertainty that is now increasingly afflicting Austrian enterprises too. At the same time though, the situation throughout Austrian industry is not exactly unfavourable because capacity utilisation is high and for most components the current indicator suggests the pace of the economic decline is levelling off. Even the quotient calculated from the indices for new orders and inventories, which is a reliable leading indicator for future development in Austrian industry, lies just under the neutral threshold. "Based on the latest survey among Austrian industrial companies we do not expect to see another setback in Austrian industry the likes of 2008/2009, but having said that there are no significant impulses on the horizon either until the end of 2012. Given the very moderate trends in the sector so far we have scaled back our growth outlook for the sector and now expect an increase in industrial production for the whole of 2012 of no more than one percent, after 7 percent in 2011", said Bruckbauer. The outlook for industry in the coming year is brighter, assuming that a credible solution is found for the euro crisis. Austrian industry, which is very competitive internationally speaking, is certainly capable of growing at a faster rate of roughly three percent. The sector remains a stable pillar of the Austrian economy.
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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