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30.03.2016

Bank Austria Purchasing Managers’ Index in March:
Pace of Austria’s industrial growth increases since start of year

  • Faster industrial growth for start of spring: Bank Austria Purchasing Managers’ Index climbs to 52.8 points in March
  • Substantial increase in domestic orders leads to strongest expansion in production for two years; no impact on labour market in March, however, after interruption in ongoing employment growth
  • Earnings situation of domestic industrial companies improves due to sinking input prices and moderate rise in output prices
  • Industrial recovery expected to remain robust: domestic demand may compensate for global difficulties

In spite of growing concerns about the global economy, Austrian industry is in good shape at present. “The Bank Austria Purchasing Managers’ Index stands at 52.8 points in March. Unfazed by global uncertainties, since the start of the year Austria industry has been enjoying an upwards trend and even slightly increased the pace of growth at the start of the spring,” explained Stefan Bruckbauer, Bank Austria’s chief economist. This produces an average indicator reading of 52 points for the first quarter of 2016, which is the best in two years. “The industrial upswing is thanks to the substantial increase in domestic orders, which led to strong expansion in production. By contrast, declining new export orders are signalling difficulties for industry due to global trade. This explains why companies are reluctant to recruit and are still being cost-conscious with managing their inventories,” said Bruckbauer, summarising the main findings of the monthly survey among Austrian purchasing managers.

The substantial increase in new and follow-up orders, which prompted Austrian industrial companies to implement the strongest expansion in production for more than two years, was decisive for the growth in the Bank Austria Purchasing Managers’ Index compared to the previous month. “In March, there was a significant improvement in demand for goods produced by Austrian industry. However, the positive order trend was only driven by brisker domestic demand. Export order numbers declined slightly in March,” added Bank Austria economist Walter Pudschedl. Domestic demand more than compensated for the setbacks caused by sluggish global trade; the order backlog grew yet again in March as a result.

The strong demand for Austrian industrial products brought about a hike in the quantities of commodities and primary materials purchased in March. Since supplier inventories were low, this resulted in longer delivery times, but did not lead to upwards pressure on prices. Furthermore, Austrian industrial companies once again benefited from declining global price trends in March. “Companies were able to purchase many commodities at more affordable prices in March, while demand was strong enough for them to raise output prices slightly for the second month running. On the whole, this brought about a modest easing of cost pressure and an improvement in earnings for Austrian companies compared to the previous month,” summarised Pudschedl.

The clear expansion in production was not reflected on the labour market in March, since employment growth in Austrian industry, which had been ongoing for months, came to a standstill. But the situation on the sector’s labour market is comparatively encouraging. During the first quarter of 2016, employment was up slightly and unemployment was down when compared with the previous year. At around 5 percent, the unemployment rate is also much lower than in the economy overall, which stands at the seasonally-adjusted level of just over 9 percent. “We are optimistic that the current employment index, which indicates a decline to just under 50 points, is only showing an interruption and not an end to the employment growth that has been ongoing since late summer 2015. The positive order situation and increased capacity utilisation that recently became evident suggest at least moderate employment growth in Austrian industry over the coming months,” added Pudschedl.

With its increase in March, the Bank Austria Purchasing Managers’ Index not only illustrates an improvement in current Austrian industrial activity, but also indirectly promises a continued recovery for the coming months. New orders relative to inventories, which has so far been a very reliable leading indicator, continued to rise and even gave the best reading in five years. Accordingly, current inventories are too low for incoming orders to be processed without increases in production.

The positive development of the Bank Austria Purchasing Managers’ Index is mirrored by the trends in other industrial countries. The indicator readings were up slightly in March both in the USA and in the eurozone. At the same time, and contrary to current data, downside risks made for gloomy sentiment in Austrian industry, which is reflected in correspondingly cautious capacity planning in HR policy too, to name but one example. This is all due to the fact that domestic demand is driving the positive order trend, while demand for exports is diminishing at present. Sluggish global trade as a result of the slowdown in economic activity is causing difficulties in a range of emerging countries. “We assume that Austrian industry will continue to recover over the coming months. Strong domestic demand is largely compensating for the difficulties caused by tough global demand conditions, supported by the undervalued euro and low commodity prices,” said Bruckbauer, discussing his expectations. What is more, some of the ECB’s recently announced measures could at least neutralise some of the downside risks that have cropped up over the last few weeks.

 tables (PDF; 180 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.