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29.12.2016

Bank Austria Purchasing Managers' Index in December:
The year ends on a high note as Austria’s industrial sector rallies strongly at the end of 2016

  • The Bank Austria Purchasing Managers' Index grows at its fastest rate for more than five years, reaching 56.3 points
  • Large increases in new orders as Austrian firms ramp up production
  • After two years of decline, the industrial sector has created jobs once again in 2016
  • Hikes in the prices of raw materials and a weaker euro put mounting pressure on costs
  • Industrial sector to continue to grow strongly at the start of 2017, but risks dampen future prospects

The Austrian industrial sector was able to rally strongly at the end of 2016. In the opinion of Bank Austria Chief Economist, Stefan Bruckbauer: “The upward trend in the domestic industrial sector gained significant momentum at the end of the year. In December, the Bank Austria Purchasing Managers' Index rose from 55.4 to 56.3 points, indicating the strongest growth for more than five years.” Business was particularly brisk in the capital goods sector and for producers of purchased materials. However, the upward trend in the consumer goods sector was markedly weaker. “Due to a significantly higher number of new orders, Austrian industrial sector firms substantially increased their production output in December, which meant they hired more staff. The downside of expanding industrial activity is higher costs due to dearer raw materials; a factor which has also been reflected in output prices”, says Bruckbauer.

The gratifyingly large increase in new and follow-up orders was a crucial factor in the rise in the Bank Austria Purchasing Managers' Index. According to Bank Austria economist, Walter Pudschedl: “In December, Austrian industrial sector firms recorded the biggest increase in new orders since the spring of 2011. Demand from abroad for goods made in Austria was especially strong. Germany showed particularly keen interest in Austrian products.” The sharp rise in demand prompted Austrian firms to expand production on a vast scale. The production index reached a 5-year high of 58 points. Even so, the order backlogs have continued to increase at the fastest rate in almost three years, the largest rise being in the intermediate goods manufacturing sector.

Strong order intake has resulted in an increased need for staff in the Austrian industrial sector. “Domestic production firms have been hiring additional staff since the middle of 2016. Growth in employment gained momentum again in December, and it is now increasing at its fastest rate for 5½ years”, says Pudschedl. Thanks to the significant increase in employment in the second half of the year and particularly at the end of it, around 1800 more people were employed in the industrial sector in 2016 than in 2015, with 581,500 workers on average. This means that after two successive years of declining employment, new jobs have emerged once more in the industrial sector. However, the rise of 0.3 percent year-on-year was significantly lower than the big increase of 1.5 percent for the economy as a whole. The industrial sector’s importance as an employer for the economy as a whole is therefore continuing to wane in favour of the service sector. In 2016, the share of total employment fell to less than 18 percent, whereas more than 74 percent of Austrian employees now work in the service sector.

Once again, Austrian industrial sector firms were faced with sharp rises in input prices in the wake of a demand-driven increase in the cost of some raw and primary materials, particularly metals. The rise in average input prices was also exacerbated by the weakening of the euro against the US dollar. In significantly improved demand-side conditions, output prices were raised for the second time in a row, and at the fastest rate in 3½ years. Thanks to rising demand, some firms even succeeded in passing the costs on to customers, but price increases were generally applied in moderation. “Due to big input price increases and a rather restrained approach to the adjustment of output prices, the cost and earnings situation in the industrial sector generally deteriorated in December. Price trends have been weighing on domestic firms since the spring of 2016”, notes Pudschedl.

“Based on the upturn in growth towards the end of the year, we are assuming an annual average increase in production of slightly more than 2 percent in real terms for Austria’s manufacturing industry in 2016. The automotive industry has had strong results, businesses in the electronics industry and metal-working firms have also achieved good, above-average growth”, says Bruckbauer. The sharp rise in the current Bank Austria Purchasing Managers' Index compared with the previous month, based on improvements in almost all aspects, suggests that we can expect the positive trend in the industrial sector over the past months to continue beyond the turn of 2016/17. At present the weaker euro is making it easier for domestic industrial sector firms to exploit the global recovery in industrial activity. There were stronger signs of this in December when the provisional Purchasing Managers' Index for the euro area made a significant climb to a 5½-year high of 54.9 points. The further rise in the German Purchasing Managers' Index to 55.5 points can be regarded as particularly positive for the Austrian industrial sector. “We feel very confident that demand for goods 'Made in Austria' will be as strong at the beginning of 2017 as it was just before the end of 2016. However, recovery in the domestic industrial sector could prove to be more fragile later in the year due to various risks, such as possible surprises stemming from the new US President’s economic policies and the consequences thereof, especially for recovery in the emerging markets, and, where Europe is concerned, the forthcoming Brexit negotiations in particular. That could affect export-oriented manufacturers of capital goods, engineering, steel production and parts of the electronics industry in particular. However, we are assuming that in 2017 the Austrian industrial sector can broadly match the 2016 result with an increase in production of a little over 2 percent”, says Bruckbauer with a note of optimism.

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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