Bank Austria Purchasing Managers' Index in October:
Industrial activity in Austria gaining momentum
- Bank Austria Purchasing Managers' Index increases to 53.9 points in October: industry makes a dynamic start to the fourth quarter of 2016
- More new and follow-up orders, especially from inside Austria
- High speed of production expansion continuing
- Rising raw material prices burdening Austrian companies
- Good prospects for Austrian industry in the coming months, but uncertainties clouding the outlook for 2017
Austrian industry is increasing its pace of growth at the start of the fourth quarter of 2016. "Austrian industry has been on a growth path since spring 2015. Although still very moderate at the beginning, the upward trend is starting to accelerate shortly before the end of 2016. In October the Bank Austria Purchasing Managers' Index increased by a further 0.4 of a point compared with the previous month to 53.9 Points", said Stefan Bruckbauer, Chief Economist at Bank Austria. Domestic industry is achieving a very solid growth rate at present. The uncertainty caused by the Brexit vote has meanwhile been surmounted, and it appears that Austrian industry is rallying strongly towards the end of the year due to favourable domestic demand at present and a now improving international environment. "Since Austrian industry is currently benefiting from a pronounced increase in new orders, production is expanding at the same rate and employment is also still rising. One negative aspect is the rise in raw material prices which are having an unfavourable effect on the profitability of companies", said Bruckbauer summarising the most important detailed results of the monthly survey of purchasing managers in industrial companies in Austria.
The rise in the Bank Austria Purchasing Managers' Index was largely due to the significant improvement in the order situation. "Austrian companies received far more new and follow-up orders from inside the country in October. The hitherto slightly weakening demand for exports also improved for the second month in succession. Domestic industry therefore again increased its production output considerably", said Bank Austria Economist Walter Pudschedl. However, the pace of production expansion remained stable in October despite the improved order situation. This led to a further rise in backlogs of work.
In view of the improvement in the order situation, Austrian companies greatly increased their quantity of purchases considerably in October. However, stocks of purchases dropped substantially, in fact quicker than in the previous month. Stocks of finished goods actually declined even faster. "The rapid decrease in stocks of purchases and finished goods in a month-by-month comparison is firstly an expression of continuing cost-conscious stock management in Austrian industry, but also shows that companies have slightly underestimated the current economic upturn", said Pudschedl. Another reason is the further increase in average delivery times.
Just like the previous month, the price trends show an uneven picture. Whereas input prices rose again in September, e.g. due to the higher cost of oil, output prices have been dropping for seven months. "The current price trends have now had an adverse effect on the profitability of Austrian companies for the third month in succession because the higher costs in purchasing cannot be passed on to sales prices in the tough competitive environment at present", said Pudschedl.
Following the temporary uncertainty caused by the Brexit vote in the United Kingdom, Austrian industry is gaining more momentum again. The confidence in the sustainability of the current recovery has started to become consolidated in Austrian companies, a fact which can be seen, for example, by the now continuing pronounced rise in employment. The further rise in the current Bank Austria Purchasing Managers' Index coupled with its considerable improvement in the order situation is an indication of a still solid growth course by Austrian industry in the next few months. In addition to the upswing in domestic orders, the demand for exports is also improving again at present. This is also attributable to the general improvement in the Purchasing Managers' Index in Europe. The provisional Purchasing Managers' Index for manufacturing industry in the eurozone rose from 52.6 to 53.3 points in October, and mainly due to the upturn in Germany, the most important trading partner of Austrian industry, to 55.1 points, the highest value since the start of 2014. "In view of the improved international environment and the greater confidence in domestic companies, we are expecting solid industrial activity in Austria in the next few months. We are optimistic that industry can even slightly exceed our real growth forecast of 2% for 2016 thanks to a good rally at the end of the year and therefore also become a little more dynamic than in 2015", said Bruckbauer. The prospects for 2017 are still negative due to political, but also increasing protectionist trends in global trade. However, there could be positive surprises like those at present. However, the Bank Austria Economists expect industrial growth to be slightly lower than in 2016.
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Enquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0) 5 05 05-41957;