Bank Austria overview of industries:
Industrial growth remains moderate in 2015 – more robust growth of over three per cent expected in 2016
- Industrial output will grow by 2 per cent in 2015
- Long-term growth path of over 3 per cent will be reached in 2016
- In 2016 the automotive and electrical industries will replace mechanical engineering and the steel industry – which recorded the strongest expansion in 2015 – as the drivers of industrial growth
- The construction industry is gathering momentum only slowly and will end 2015 with a lower turnover than in the previous year
- Retail sales improve, boosted by sales of motor vehicles and foodstuffs
- Favourable trend in the services sector – disproportionately strong growth in the hotel and restaurant segment
Austria’s industry is experiencing a slow recovery, supported by a stronger impetus from Europe. Stefan Bruckbauer, Chief Economist of Bank Austria, summarises the current overview of Austria’s industries: "Since the beginning of autumn, the favourable trend in specific industries - especially those involved in foreign trade – has offset weak investment demand in Austria. An impetus to growth is provided primarily by mechanical engineering and the steel industry, but also by the food manufacturing industry. The expectations of vehicle manufacturers and the electrical industry moreover suggest that these sectors will experience stronger growth in the next few months."
Industrial growth remains muted
2015 will be the fifth weak economic year in succession for Austria’s industry in a long-term comparison. Industrial growth has picked up slightly during the year, however, and in line with higher output expectations in September and October it will continue to recover at a moderate rate. Bank Austria economist Günter Wolf: "Output growth is likely to average some 2 per cent in 2015. The industrial sector will probably return to a long-term growth path of over 3 per cent in 2016."
The impetus to growth in the current year came largely from mechanical engineering, which recorded 8 per cent growth in output in the first eight months. Other industries which experienced strong growth were steel, with output growth of 6 per cent in the first eight months of 2015, and food manufacturing with growth of 2.3 per cent. All three industries benefit from the stable and in some cases buoyant demand for exports, and steel manufacturers additionally from stronger domestic sales.
The optimism of vehicle manufacturers and the electrical industry in the evaluation of their order books and in their short-term output expectations in September and October points to a turnaround in these two industries. Wolf explains: "Austria’s automotive industry, which in 2015 was in particular impacted by a decline in exports of rail vehicles and passenger cars until July, is likely to benefit from the recovery in demand for motor vehicles in Europe in the current year. Manufacturers of electrotechnical products and systems, after experiencing a slight decline in output until August, are especially challenged by shifts in investment in Austria’s electrical industry in 2015. However, the last few months have seen a marked improvement in export orders in the industry. Both industries will probably replace mechanical engineering and the steel industry as the main drivers of industrial growth in 2016."
In addition, sentiment in companies in the chemical industry and those engaged in the manufacture of plastics products, whose output was declining slightly until August, was much more positive in recent months. In 2015 there are signs that this industry is also poised for a recovery. Metal goods manufacturers reported growth in output in July and August, and most companies in this segment are expecting further growth in the next few months. But any perceptible upturn in the metal goods industry will not take place before 2016 with the recovery of demand for Austrian and foreign capital goods, and especially of activity in Austria’s structural engineering sector.
Construction activity picks up very slowly
Bank Austria economist Günter Wolf says of the construction industry: "Although turnover in the construction industry declined more slowly in the middle of 2015 and companies are somewhat more optimistic, the sector’s turnover at the end of 2015 will be down on the previous year’s figure. By August, turnover in the area of civil engineering contracted by 0.8 per cent and in structural engineering by 2.2 per cent, with setbacks in both housing and commercial construction." While the corporate sector is not expected to provide any impetus before 2016, the increasing number of building permits for housing construction has for some time been pointing to additional demand for construction in the structural engineering segment – it is only the orders that are missing. This development is accompanied by a decline in orders for civil engineering projects, as also suggested by a survey among companies in October. This is most likely explained by tight public-sector budgets.
More robust sales activity
Unlike wholesale trade, where turnover declined in the first eight months of 2015 on account of the weak performance in industry and foreign trade, retail sales and sales of motor vehicles have picked up in the current year. The rise in sales of motor vehicles in the past few months was driven primarily by demand for motorcycles and trucks. As the number of passenger car registrations has again been rising in the last four months, we are likely to see a further improvement in sales of cars and – for the first time since 2011 – a real increase in sales in this segment in average terms for the current year.
Retail sales increased by a real 0.9 per cent until August 2015. The sector will probably exceed the annual average figure thanks to the stronger growth of disposable household incomes and an increase in the number of employed persons. Among the proportionately large sectors, disproportionately strong sales have been reported by food retailers, chemists and those trading in cosmetics and drugstore articles.
Service industries continue to record growth
In the second quarter of 2015 service industries lost some of the momentum seen in previous months, but they nonetheless saw their sales grow by a nominal 1.5 per cent in the first half of the year. The sector is likely to have experienced stronger growth in the second half of the year, as reflected over the past months in the growing number of positive appraisals of the demand trend. The industries which performed less favourably in 2015 were the business-oriented service industries, in particular transportation and manpower services. They cannot protect themselves from the persistent weakness in industry and the export sector. The marked increase in optimistic business expectations among IT service providers, after hardly improving in the first six months, suggests that 2015 could be a sound year with relatively strong growth.
The hotel and restaurant segment is once more proving to be a key pillar of growth for the services sector in 2015, with turnover up by 3.7 per cent in the first half of the current year. The most recent favourable tourism figures and the significant increase in optimistic company appraisals in October suggest that the strong growth will continue in the second half of the year.
Bank Austria Economics & Market Analysis Austria
Günter Wolf, tel. +43 (0) 50505 - 41954;