Bank Austria Purchasing Managers' Index in June:
Austrian industry gearing up for summer break
- Bank Austria's Purchasing Managers' Index sank in June to 50.1 points – after the fourth decline in a row Austrian industry has nearly stopped growing
- Slight improvement in orders and expansion in production
- Reduction in employment, shorter delivery times and lower commodity prices signal continued contraction of industrial activity in the summer
- Subdued industrial growth in 2012 of roughly 2 percent – cyclical sectors of steel and metals weaker, mechanical engineering supportive
The uncertainty caused by the euro crisis and the deeper recession in some European countries is making for an increasingly difficult business environment. "The Bank Austria Purchasing Managers' Index fell in June for the fourth month in a row. But now sitting at just 50.1 points the indicator still points towards minimal growth in the business of Austrian industrial companies. That said, manufacturing is already skirting very close to stagnation", said Bank Austria chief economist Stefan Bruckbauer. According to the results of the survey among purchasing managers though, Austrian industry is in quite rude health by European comparison, because the indicator calculated by Markit Economics has already fallen deep into negative territory in virtually every country of the continent, including Germany. By contrast, the order situation in Austrian industry improved somewhat in June and manufacturing was expanded.
Additionally, the lower input prices have alleviated the pressure on costs. However, the growing uncertainty has resulted in a moderate decline in employment and cost-sensitive inventory policies", said Bruckbauer, highlighting some of the details of the survey.
One positive aspect in June was that Austrian industry managed to record growth in orders for the first time in three months, mainly from domestic customers. Nevertheless, the growth in new and follow-up orders was rather low, as external demand dropped once more in some key sales countries on account of the subdued economic activity. Export orders fell for the third month in a row in June. "Alongside the modest growth in new orders, existing orders were executed more rapidly, thus ensuring a rather robust increase in production. Yet this means the order backlog contracted quickly in June, at a rate not seen for six months", summarised Bruckbauer.
Most of the survey results suggest industrial activity noticeably flattened in June, leaving little momentum in the sector for the summer months at least – if at all. The prices of some primary materials are falling sharply on account of the global turndown in demand and the rising economic concerns in recent weeks. The cheaper price of oil in particular ensured input prices plunged more than ever before in the last three years, while for the first time in six months we also observed a reduction in sales prices, though to a far lesser extent. The strong competitive pressure under steadily weaker demand led to somewhat lower sales prices, particularly in the sectors for intermediate and capital goods. "One positive side-effect of the uninspiring industrial activity is that the pressure on Austrian industrial companies has been relieved by the drop in input prices. Given the only moderate decline in sales prices we are seeing an improvement just now in the cost/earnings position of Austrian industry", analysed Bank Austria economist Walter Pudschedl.
"Alongside the falling commodity prices, the shorter delivery times and the downsizing in employment are both signs of a weaker international economic climate that is currently weighing down on Austrian industry", explained Pudschedl. The better availability of primary materials and commodities means that average delivery times of suppliers dropped in June to a considerable extent, a rate last seen three years ago. Jobs were cut in Austrian manufacturing for the first time since February. However, the ratio of companies firing in June was almost equal to the ratio of those hiring. Moreover, the slump in demand meant that stocks of primary materials receded in June at a rate last seen approximately two and a half years ago. By contrast, the growth in inventories of finished goods continued, albeit at a very gentle pace.
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 current index of new orders relative to that of inventories improved a little compared to the previous month, but there is still no sign of a marked pick-up in the stagnant industrial activity. "Over the summer, the best we can hope for is a stable trend in manufacturing in Austrian industry.
Given the tricky overall conditions in Europe, the growth outlook remains subdued, at least until the end of the year. For 2012 as a whole we still predict a moderate upturn in industrial manufacturing of roughly 2 percent, while given its high international competitiveness we expect to see some above-average development in mechanical engineering", concluded Bruckbauer.
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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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