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28.07.2016

Bank Austria Purchasing Managers’ Index in July:
Austrian industry indifferent to Brexit decision

  • Bank Austria Purchasing Managers’ Index signals solid industrial growth in July at 53.4 points: pace dips only marginally compared to previous month
  • Slowdown in order growth curbs production expansion slightly
  • Price trends for purchasing and sales weigh down more on costs and earnings for companies in July
  • Employment growth picks up pace despite slowdown in industrial activity
  • First survey result after Brexit decision: no setback in eurozone and Austria
  • Brexit impacts remain manageable for Austrian industry

The uncertainty in the wake of the Brexit decision has so far not been able to thwart the recovery of Austrian industry. However, industry has managed to lose some momentum at the start of the second half year. "The Bank Austria Purchasing Managers' Index failed to reach the 5-year high of the previous month in July, but sitting at 53.4 points, the first survey of the index after the Brexit decision continues to show a reliable growth performance within Austrian industry. The current reading is still the second highest recorded in the last two and a half years", revealed Bank Austria chief economist Stefan Bruckbauer. The survey among Austrian purchasing managers shows a modest slowdown in industrial activity on a broad basis. Almost every component of the indicator revealed a somewhat flatter upwards trend in July than in the previous month. "The more moderate industrial activity in July is influenced by lower production growth, weaker demand growth, a smaller increase in the order backlog and purchasing quantities as well as a now mild increase in input prices. By contrast, the pace of employment growth picked up slightly in July", said Bruckbauer, summarising the key results.

Once again, Austrian industry managed to record more new and follow-up orders in July than in the previous month. That said, the growth rate dropped somewhat. "In light of the weaker order growth, Austrian companies also eased off on production a bit in July. Demand from other European countries in particular barely rose any more in July, while orders from within the country continued to post robust growth", said Bank Austria economist Walter Pudschedl. Austrian companies were slow in adjusting their production capacities so the order backlogs grew further in July, though at a noticeably slower pace than in the previous month.

Regardless of the moderate slowdown in industrial activity, employment increased in July as a result of the expansion in production which has been underway for more than a year. "For almost a year now, Austrian companies in the material goods sector have been creating new jobs again, and at the start of the second half of 2016 this upwards trend actually accelerated, in contrast to the other results of the Bank Austria Purchasing Managers' Index", said Pudschedl. While employment dipped by roughly half a percent by annual comparison in 2015 as a whole, currently sitting at a seasonally adjusted total of more than 580,000 there are approximately 2,000 more people employed in the material goods industry now than one year ago.

The slowdown in industrial activity is also reflected in price trends in July. Although input prices rose for the second month in succession after declining for almost a year, the increase was much smaller. At the same time, sales prices contracted sharply in view of the tough competition on the market. "For the third month in a row, price trends in purchasing and sales increased pressure slightly on earnings for Austrian companies on average, compared to the previous month", said Pudschedl. To counter the weaker earnings position, Austrian industrial firms continued to adopt very prudent, cost-conscious inventory management policies. Both stocks of primary materials and finished goods inventories were markedly reduced in July.

The first survey after the decision by the UK to leave the European Union reveals only a moderate reduction in the Bank Austria Purchasing Managers’ Index compared to the previous month. The preliminary purchasing managers' index in the eurozone and especially in Austria’s main trading partner Germany fell only marginally from 52.8 to 51.9 and from 54.5 to 53.7 points respectively in July. So the fears about a sharp downturn in countries of the eurozone after the decline in the UK purchasing managers' index to 49.1 points, and thus below the growth threshold, failed to materialise. Industrial activity in the eurozone and in Austria is proving durable, and has slowed down only marginally. "There has been no Brexit shock. The latest survey results confirm that the economic damage is likely to be concentrated in the United Kingdom, as expected. Even if the consequences for the eurozone and Austria become stronger over time via foreign trade, we do not expect a slump in industrial activity. The implications of Brexit for Austrian industry should remain manageable", said Bruckbauer, convinced. The economists at Bank Austria believe that industrial growth may well have peaked around the middle of the year because the slowdown noted in the latest purchasing managers’ index from Bank Austria following the Brexit decision is likely to continue in the coming months. That said, in 2016 as a whole industry will at least generate the same level of growth as the previous year, amounting to roughly 2 percent. In 2017 the then more noticeable consequences of Brexit will probably mean that industry growth in Austria falls short of the 2 percent mark.

Enquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0) 50505 - 41957
E-mail: walter.pudschedl@unicreditgroup.at