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30.10.2014

Bank Austria Purchasing Managers’ Index for October:
Industrial activity ever more depressed in Austria

  • Bank Austria Purchasing Managers' Index sinks to 46.9 points, reaching its lowest reading for two years
  • Austrian industry lowers production output for second consecutive month on account of dwindling new orders
  • Fall in job numbers accelerates
  • Lack of demand pushes both input and output prices down
  • No improvement on horizon for industrial activity until turn of year

The slowdown in Austrian industrial activity has clearly accelerated through the autumn. "The economic situation facing industry has not been as hard as in this autumn for two years: in October, Bank Austria’s Purchasing Managers’ Index sank by a further point on the previous month to 46.9, revealing a stronger contraction for industry than in the previous month. This means the indicator has fallen short of the 50-point mark for the second month in a row", said Bank Austria chief economist Stefan Bruckbauer, summarising the situation. In the monthly survey of Austrian purchasing managers in October, almost every component is pointing downwards. "In view of dwindling new orders, Austrian businesses cut back markedly on their production output in October. Falling prices, cautious inventory management and downsizing are additional consequences of the current dip in demand", added Bruckbauer.

General conditions for Austrian industry have become more troublesome, as demonstrated by the noticeable worsening of order trends. "Austrian companies registered their sharpest fall in new orders in October for two years. Demand from abroad dropped for the second month in a row, which was compounded by a strong fall for domestic orders in particular. Consequently, Austrian companies reduced their production levels significantly", analysed Bank Austria economist Walter Pudschedl. The production index dropped to 47.5 points, reaching its lowest reading for eighteen months. Additionally, the much reduced order backlog points towards sustained overcapacities in Austrian industry.

Austrian industrial companies have begun to align their HR capacities to the weak order flow. "The decline in industrial production in October also led to a reduction in employment, and the pace of downsizing picked up noticeably on the previous month", said Pudschedl. All told, some 15 percent of the surveyed companies reported that they had let staff go in October.

The cooldown of industrial activity in October is also clearly reflected in price trends. "Although average input prices in Austrian industry dropped for the first time in six months on account of cheaper oil and other commodities, such as many metals and plastics, these cost benefits largely had to be passed on to customers given the weak demand – also with a view to being proactive in generating new business", added Pudschedl. Declining input prices coupled with falling output prices in October resulted in there being no tangible change in earnings for Austrian industrial companies.

"The focus for Austrian industrials in October switched to very cautious inventory management, which suggests a very muted assessment of future business opportunities", said Bruckbauer. The lower production requirements in October led to an adjustment of purchase quantities, which were drastically reduced, and resulted in a further decline in stocks of purchases. Inventories have been falling for nearly a year now, but the reduction in October was the sharpest this year. Finished goods inventories also contracted for the first time in six months. Although average delivery times continued to increase in October, the index rose to its highest level for a year, thereby showing that there are barely any bottlenecks to supply.

Every component of the Bank Austria Purchasing Managers’ Index worsened in October, but the pace of the declines did slow somewhat in most cases compared to September. After the average indicator value for the third quarter dropped to around the 50-point mark – consistent with stagnation in industry – the economic situation continued to worsen at the start of the last quarter in 2014. That said, new orders relative to inventories, which has so far been a reliable leading indicator, managed to turn up somewhat from its annual low in September. This suggests a return of stability to industrial activity. Furthermore, the European economy promises some support in the coming months. In contrast to Austria, the provisional purchasing managers’ index for the eurozone in October rose marginally to 50.7 points, thereby signalling modest industrial growth. The German purchasing managers’ index climbed noticeably in October reaching 51.8 points. Austrian industrial companies benefit from the fact that industrial growth is mainly driven by neighbouring Germany. "While geopolitical problems in Europe and the Middle East weigh down on the Austrian economy, the weaker euro should support export-oriented industries in the coming months. Yet neither the latest survey results nor the prevailing external conditions suggest there will be any major improvement in industrial activity in Austria before the turn of the year", said Bruckbauer in conclusion.

 Charts (PDF, 28 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.