Bank Austria Purchasing Managers' Index in May:
Industry still growing – but significant momentum lost
- Bank Austria Purchasing Managers' Index in May comes in at 50.2 points, still denoting growth but now third decline in a row
- Pros: growing production output has created new jobs in sector for three months, employment up by 1.7 percent in first quarter
- Cons: falling demand, especially from abroad, subdues industry outlook
- 2012 forecast of 0.8 percent for Austrian economy secure
- Muted outlook: GDP growth forecast for 2013 drops to 1.5 percent due to uncertain overall climate
The headwind from Europe is blowing ever-stronger in the face of Austrian industry. Nonetheless, the Austrian production sector remains on its growth trajectory. "The Bank Austria Purchasing Managers' Index fell in May for the third time in a row to just 50.2 points. That said, despite the unfavourable raft of data from Europe in this the fifth month of the year, the indicator still denotes growth above 50 points", explained Bank Austria chief economist Stefan Bruckbauer. The recovery in industry that took place around the turn of the year has steadily lost support in recent months. "Production output increased in May, which created additional employment in the sector. However, there was a parallel decline in new orders, the order backlog has dwindled and the growing uncertainty is prompting companies to adopt a more cautious inventory policy", said Bruckbauer, listing the main results of the monthly survey among Austrian industrial companies.
The weak development in demand was instrumental in the decline of the Bank Austria Purchasing Managers' Index in May. "For the last two months now, Austrian manufacturers have been receiving fewer new orders. Export orders in particular dropped sharply in May. This is one indication that the European manufacturing sector is starting to play a waiting game in light of the uncertainty in the eurozone", said Bruckbauer.
Despite the fall in demand, Austrian industry still increased its production output. "The production index rose in May to 52.8 points. This represents the fifth monthly increase in output in a row. In order to meet these higher production requirements, employment numbers were raised in the sector during May", revealed Bank Austria economist Walter Pudschedl. In the first third of 2012 manufacturing in Austria employed almost 10,000 more people than in the same period the previous year. This corresponds to an increase of 1.7% on average, which is even slightly higher than the employment growth in the economy as a whole. Given the slowdown that is now taking shape in industry, the economists of Bank Austria reckon there is no reason to believe that the positive trends in employment in Austrian industry at present will continue in the coming months.
Growing concerns about the economy given the challenging economic climate are prompting Austrian manufacturers to adopt a more cautious inventory policy. "In anticipation of possible declines in demand in the future, Austrian industrial companies significantly reduced their purchasing quantities in May, and scaled back their stocks of primary materials. Inventories for sale were increased only marginally to keep costs under control", said Pudschedl. For the first time in nearly 3 years, average delivery times in Austrian industry were reduced on account of the more subdued demand.
After the encouraging stimulation in industrial activity around the turn of the year, Austrian manufacturers have increasingly lost momentum during the second quarter of 2012. In contrast to most other European countries, however, the Austrian manufacturing sector is still robust in May and continues to grow, albeit at a noticeably slower pace than before. As highlighted by the recent decline in the Purchasing Managers' Index, Austrian industry is virtually stagnating at present – influenced as it is by political and economic trends in Europe. The poor order situation in May makes it clear that Austrian industry will have to navigate some choppy waters ahead in the coming months. The current ratio of the index for new orders relative to that of inventories is hovering around neutral territory, and so consequently we are heading for a period of stable production output.
After industrial production rose sharply in the first three months, the Bank Austria Purchasing Managers' Index points towards stagnation in the coming months. "Given the tricky overall conditions in Europe, the growth outlook for Austrian industry in the second half of the year remains subdued. Nonetheless, industrial output will remain an important pillar of growth in the Austrian economy contributing an expected 0.8%", explained Bruckbauer.
In recent weeks the growth forecast for the coming year has become somewhat less encouraging in the opinion of the economists at Bank Austria. As there is still no definitive solution in sight to the euro crisis, or at least a period of relative calm, it is unlikely there will be any marked pick-up in economic activity for the time being. "For 2013 we now only estimate an increase in GDP in Austria by 1.5%. The greater budgetary discipline and the weaker growth of many countries as a result, but first and foremost the uncertainty as to where the eurozone is heading, have very negative implications for the Austrian economy", said Bruckbauer, explaining the adjustment of the GDP forecast of Bank Austria for the coming year, which to date was 2.0%.
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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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