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31.08.2016

Bank Austria Purchasing Managers' Index in August:
Initial mild headwind for industry in Austria as a result of the
Brexit effect

  • Despite the decline to 52.1, the Bank Austria Purchasing Managers' Index still indicates growth in August, albeit at a lower level than in June and July
  • Continued growth in new domestic orders; new export orders declined in August
  • Input and output prices are stagnating
  • Despite slowdown in economic activity in the industrial sector, the growth in employment levels remains high
  • Initial signs of a mild Brexit effect in France and Germany as well
  • Brexit effects remain manageable for industry in Austria, but are set to continue

The uncertainty that has followed the Brexit decision has so far not managed to stop the recovery of domestic industry, but economic activity in the industrial sector has lost momentum for the second time following the Brexit decision. "The decline in the Bank Austria Purchasing Managers’ Index can once again be traced back to reduced new export orders, which suggests a correlation between the two", suggests Bank Austria Chief Economist Stefan Bruckbauer. While there was once again an overall increase in new orders in August, albeit at a significantly lower level than in the previous two months, there was, for the first time since May, a slight decline in new export orders. "Despite the decline, the Bank Austria Purchasing Managers’ Index still indicates growth in August – albeit at a lower level. In addition to new domestic orders, production capacity and quantities of purchases are continuing to increase, order backlogs have at the very least not declined, and the number of workers employed has increased at a similar rate to the previous two months", explains Bruckbauer, summarising the most important interim results.

In August, the domestic industrial sector was once again able to secure more new and follow-up orders in comparison to the previous month. However, the pace of this increase was once again slower. "In line with the slowing increase in new orders, Austrian companies have also cut back the pace of output expansion significantly. While export demand merely stagnated in July, it declined significantly in August, and the indicator reached its lowest point in nearly two years", states Bank Austria Economist Walter Pudschedl. The increase in new orders slowed down at a similar rate to production, with the net effect that order backlogs did not change in August.

Despite the slowdown in economic activity in the industrial sector in July and August, growth in employment levels was just as strong in August as in the previous two months due to the expansion in output, which has now entered its second year. "Job creation in the Austrian material goods industry has been ongoing for more than a year, and has so far resisted this slight reduction in overall economic activity in the industrial sector", Pudschedl adds.

The reduced economic activity in the industrial sector was also reflected in price trends in August. "Developments in input and output prices neither increased nor reduced pressure on domestic companies, as both price indicators stagnated in August", continues Pudschedl. Developments regarding stock levels also reflected the weaker economic situation: On the one hand, stocks of purchases increased slightly for the first time in more than a year, while on the other hand, stocks of finished goods declined at a significantly lower rate compared to the previous year and a half – evidently as a result of the somewhat lower than expected production shortfall.

In contrast to the results of the initial surveys regarding the economic mood in July, several important indicators are now pointing to a slight slowdown in August – the first since the referendum in the United Kingdom. For instance, the German Ifo index declined noticeably in August, as did, most recently, the French INSEE indicator of the mood in the industrial sector. The Bank Austria Purchasing Managers' Index is now following this trend as well, as a result of weaker development in export orders. "The decline in certain mood indicators suggests that the Brexit effect has now reached the eurozone and Austria. However, other factors, such as the increase in terrorist attacks or the crisis in Turkey, may have also had a negative impact on the mood", says Bruckbauer, adding: "As expected, the Brexit decision is negatively affecting economic activity in the eurozone and in Austria and, as expected, it will take some time before the effects of the decision become noticeable. Nevertheless, there has so far not been a Brexit shock in the eurozone or in Austria, which is, again, as expected."

However, the same cannot be said for the United Kingdom, where the Purchasing Managers' Index plummeted five points to 47.5 in July. Nevertheless, as Bank Austria's economists expected, industry dynamics in Austria hit their peak in the middle of the year, as the slowdown in economic activity in the industrial sector that is currently emerging in the Bank Austria Purchasing Managers' Index is expected to continue in the coming months. The rate of growth in the industrial sector will, however, at least reach the same level as the previous year, at 2 percent over the course of 2016 as a whole. Industrial growth in Austria is expected to fall short of the 2 percent mark in 2017 due to the effects of Brexit, which will have become more noticeable by then.

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Enquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0) 5 05 05-41957
E-mail: walter.pudschedl@unicreditgroup.at