Bank Austria Purchasing Managers' Index in July:
Slight improvement in industrial activity
- Industry growth picks up somewhat in summer: Bank Austria Purchasing Managers' Index climbs to 50.9 points in July:
- Strongest growth in production since winter
- Orders stable thanks to greater demand from abroad
- Drop in employment picks up
- In spite of geopolitical risks, tailwind from abroad will bolster industrial activity in second half of the year
At the start of the second half-year the economic activity of Austrian industry is on a slight upwards trend. "Compared to the previous month, which registered the lowest level this year so far, the Bank Austria Purchasing Managers' Index rose 0.5 points in July and now stands at 50.9 points. The still subdued recovery in Austrian industry has now prevailed for a year", said Bank Austria chief economist Stefan Bruckbauer. With this increase in July, the indicator - which reflects the result of the monthly survey of economic activity in Austrian industry in one figure - has already made up for the decline in the previous month. "The tangible increase in production output coupled with the stabilisation in orders pulled the indicator up in July. This is contrasted with a moderate yet increasing decline in jobs at Austrian industrial companies", revealed Bruckbauer, summarising the detailed results.
Following the setback in the previous month, the modest increase in export demand for products "made in Austria" encouraged Austrian businesses to expand their production output considerably. The production index reached 53.7 points, its highest level since February. But since domestic demand fell once again, the situation concerning orders was practically unchanged on the previous month overall. "The order flow in Austrian industry remains restrained, despite the encouraging demand signals from abroad in July, including Great Britain, the USA and Asia", explained Bank Austria economist Walter Pudschedl. However, new orders in July were too low to utilise all of the existing production capacities, which resulted in a sharp decline in the order backlogs.
Austrian industrial companies have also adjusted their personnel capacities in light of the subdued demand conditions. "Following the stagnation in the previous month, more jobs were lost in July because of the lack of new and follow-up orders in Austrian industry. Jobs were also lost at roughly one in every eight industrial companies in Austria for cost-cutting reasons", added Pudschedl. While the downsizing was mainly seen at manufacturers of consumer and input goods, jobs were created at capital goods companies.
In light of the strong increase in production in July, Austrian companies raised their purchasing quantities for the fourth time in succession. Nonetheless, inventories of primary materials dropped faster than ever before this year because the increased cost awareness and the restrained production expectations prompted Austrian companies to be very careful with their inventory policies. "While input prices displayed an upwards trend in July for the second time in a row because of supply issues with some raw materials and inputs, the fierce competition triggered a slight reduction in output prices. Consequently, in light of current price trends the cost situation deteriorated for Austrian companies on average", said Pudschedl.
Following the good start to the year, industrial activity in Austria steadily slowed until the start of the summer. Having risen in July after hitting its lowest point so far this year in the previous month, the latest Bank Austria Purchasing Managers' Index is now fuelling hopes of a trend reversal. The provisional purchasing managers' index for manufacturing in the eurozone at the start of the third quarter also hints at cautious optimism after rising slightly to 51.9 points compared to the previous month. The German purchasing managers' index in particular was instrumental here, which increased to 52.9 points in July. Moreover, the persistently strong purchasing managers' index for manufacturing in the USA (56.3 points) coupled with the rise in China from 50.7 to 52 points suggests more demand is on the way for Austrian companies. "The provisional purchasing managers' indices for the eurozone, the USA and China hold out the prospect of solid support in the coming months for Austrian industry", said Bruckbauer. The economists at Bank Austria are optimistic that with a modest pick-up in Austrian industrial activity in the second half of the year, industrial growth for 2014 as a whole could total up to 4 percent. "That said, the risks to growth have risen sharply in recent weeks in view of the Ukraine crisis and the stronger sanctions against Russia", 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.