Bank Austria Purchasing Managers’ Index in August:
Subdued industrial activity causes Austria to fall behind eurozone growth again – China effect to remain manageable

  • Bank Austria Purchasing Managers' Index falls to 50.5 points, but remains above growth threshold
  • Earnings situation eases slightly
  • Declining export orders, weak growth in domestic orders
  • More jobs lost in industry again
  • Impacts of stronger slowdown in Chinese growth manageable for Europe and Austria, but Austria would be disproportionately affected
  • Austrian industry lags behind eurozone

The – albeit delayed – start to the recovery in Austrian industry since April did not continue in August. "Bank Austria's Purchasing Managers' Index clearly dropped in August, and only just remained in growth territory at 50.5 points", said Bank Austria chief economist Stefan Bruckbauer, before adding: "This means Austria has fallen behind the eurozone once again." After four months of gains, Austrian industry slipped back almost into stagnation again in August. “Austrian industrial companies did not raise their production nearly as much in August as in July, which was attributable amongst other things to the first decline in export orders for five months. The only marginal increase in domestic orders was able to compensate for this, but with orders stagnating Austrian industry again started to cut jobs and buy in less”, said Bruckbauer, summarising the main findings of the monthly survey among Austrian purchasing managers. The somewhat gentler rise in input prices alongside the admittedly continuing fall in sales prices did bring some relief to earnings.

“Those surveyed attributed the decline in incoming export orders to tougher competition, but also to currency effects caused by the renewed strength of the euro”, revealed Bank Austria economist Walter Pudschedl. Although there was no decline in incoming orders thanks to the narrow increase in domestic orders for consumer and investment goods, the trend did stagnate. The order backlog contracted slightly at the same time, for the first time since May, which suggests capacities in Austrian industry are still not fully utilised.

“Following a marginal increase in employment in July, the industrial companies surveyed reported another drop in August, and only in the field of investment goods did the demand for workers increase somewhat”, revealed Pudschedl. All told, this means jobs in Austrian industry will likely contract again on average in 2015.

Trends with input and sales prices are still on different paths. Although input prices rose slightly in August again because of currency effects and the increase in some raw material prices, sales prices barely fell. This eased the pressure on earnings significantly in August compared to the two previous months.

Austrian industry remains slower than most other economies of the eurozone. The provisional purchasing manager’s indices in August exceeded the 50-point threshold both for Germany and the eurozone average, even rising again in Germany compared to July. The most recent IFO business climate index rose again somewhat in August too. Regardless of the recent events surrounding China and the general economic concerns in the emerging markets, Austrian industry is thus unable to keep pace with the recovery in the eurozone at present.

The impacts on economic development in the eurozone of any more substantial slowdown in economic activity in China should remain manageable. A marginal slowdown of growth in China would still mean an expansion rate of 6 percent there. Yet even if growth in China were to fall sharply to three percent over the next five years, which would correspond to a fall in Chinese GDP by roughly 8 percent by 2020, this would translate to only 1 to 2 percent slower GDP growth in the eurozone until 2020, i.e. approximately 0.13 to 0.27 percent per year. Admittedly, indirect effects – through Germany for example – would mean Austria would be disproportionately affected, in spite of its low export share to China of roughly 1 percent of GDP. “We estimate that around 1.7 percent of Austrian GDP is directly or indirectly dependent on final Chinese demand”, said Bruckbauer. “A sharp slowdown in Chinese growth to 3 percent until 2020 would deprive the Austrian economy of annual growth amounting to 0.2 to 0.3 percentage points”, continued Bruckbauer. That said, effects triggered by lower raw material prices for instance could exert a positive influence again, while merely a 10-dollar reduction in the oil price by 2020 could compensate for half of this negative effect. “Overall, the effects of a slowdown in growth would be disproportionately high for Austria, but manageable, and easily offset by the positive effects of the recovery in the eurozone”, explained Bruckbauer. Nevertheless, sentiment could be clouded somewhat by further upheaval on the financial market, at least in the short term.

In spite of the increased uncertainty stemming from the emerging markets, the economists at Bank Austria assume that the eurozone recovery will continue and Austria, at least to some extent, will benefit from this in the coming months too, triggering an improvement in industrial activity in the following months as well.

Enquiries: Bank Austria Economics & Market Analysis Austria
Stefan Bruckbauer, Tel.: +43 (0) 50505 - 41951;
E-mail: stefan.bruckbauer@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.