Industry Report by UniCredit Bank Austria:
Mechanical engineering industry in Austria back on a growth path in 2017
- Mechanical engineering production expected to increase substantially by 6% in 2017, while turnover will rise by around 7% to approximately €23 billion - growth also set to continue in 2018
- Upturn contributing to higher employment: up until August the number of jobs in mechanical engineering rose by 1.8% to the record figure of 81,400
- According to a European industry comparison, mechanical engineering in Austria is the leader with a research and development quota of 4.7%
- Innovations strengthening productivity and competitiveness in the industry
- Export surplus of €4.5 billion is proof of the industry’s success
The Austrian mechanical engineering industry has returned to its growth path in 2017. After production in the industry dropped by 2.1 per cent in 2016, mechanical engineering companies are benefiting from the recovery in demand for equipment investments in 2017 and can probably expect production to rise significantly by around 6 per cent. Moderate rises in producer prices should also lead to an increase in turnover of at least 7 per cent to around €23 billion.
Growth in the industry in 2017 is being supported by higher domestic demand and even more by keen export demand. “Due to the high export quota of mechanical engineering companies, which attain almost 80 per cent of their turnover outside Austria, rising export demand is very important for growth in the industry. In particular, the industry is again exporting far more machines and systems to Central and Eastern Europe in 2017, but also to the USA. These are both markets in which the mechanical engineering industry had suffered high losses last year”, analysed UniCredit Bank Austria Economist Günter Wolf.
Economic recovery in 2017 will continue in 2018
In the first seven months of 2017, production output in the mechanical engineering industry rose by 5.8 per cent. In the second half of the year growth in the industry will continue at this level. This is an indication of the constant increase in the employment figures and companies’ optimistic expectations. The optimistic assessment of export orders in August was at the highest level since the beginning of 2008 and is confirmation of the recent excellent investment prospects for the most important sales markets, especially Germany, the largest export market for the Austrian mechanical engineering industry. 27 per cent of Austrian machine exports are delivered to Germany.
Strong demand impetus can also be expected from other European mechanical engineering markets, e.g. Poland, the Czech Republic, France and Spain. Finally, mechanical engineering exports to non-European markets should maintain the momentum from the first six months of the year. After sales losses in 2016, Austrian machines are again selling very well in the USA. Total machine exports in the first six months of 2017 rose by 6.9 per cent n nominal terms.
In 2018 investment demand in Austria will drop slightly due to the strong momentum in the current year, but will maintain its pace of growth on most European export markets. In Germany growth should actually accelerate. Higher demand for machines in the USA can also be expected in 2018. However, this will be balanced out by the lack of impetus from China. “Production growth in the mechanical engineering industry will probably amount to around 5 per cent in 2018 and therefore remain on a high long-term growth path despite the slight decrease compared with 2017. In addition, mechanical engineering will remain a growth leader in Austrian industry”, said Wolf.
Mechanical engineering as an employment driver
Mechanical engineering is one of the few expanding branches of industry in Austria. It will also create new jobs in the long term or rather the number of people employed hardly decreased during the crisis years. The number of jobs in mechanical engineering has risen by 6 per cent since 2008 while industry as a whole has seen a 3 per cent drop in job numbers. Between January and August 2017, employment in mechanical engineering increased by a further 1.8 per cent and reached the current record figure of 81,400 jobs.
The mechanical engineering is both a stable and a well-paid employer. This is proved by the personnel costs per employee anointing to an annual average of €65,000. The industry therefore lies around 12 per cent above the Austrian industrial average and 27 per cent about the figure in mechanical engineering in the EU. The relatively high wage level is primarily explained by the above-average training of the employees and the relatively high proportion of full-time jobs (only 8 per cent of employees work part-time compared with 12 per cent on average in industry as a whole).
European leader in research and development
The relatively high labour costs for mechanical engineering companies are contrasted by the high innovative capacity, the large production depth and concentration on high-quality niche areas. A European industry comparison reveals that the Austrian mechanical engineering sector is the most research-friendly. It spends 4.7 per cent of its turnover on research and development compared with an average of 2.2 per cent in the EU. The industry has also occupied a leading position for years in EU innovation surveys.
The range of mechanical engineering products creates value-added which is well above the average. Value-added per employee amounts on average to €89,000 compared with an average of €69,000 in the EU. The productivity lead is sufficiently wide to compensate for the relatively high cost burden and safeguard the price competitiveness of the companies. When adjusted for productivity, the labour costs of Austrian mechanical engineering companies are barely above the EU average and are actually 16 per cent lower than Germany, the largest manufacturing country in Europe.
Growth edge through export success
Austrian mechanical engineering companies demonstrate their competitiveness by means of a growth edge both in an industry comparison and in an international industry comparison. Over the last twenty years, production output has risen annually by 4.8 per cent compared with 3.4 per cent annually as an industry average and only 1.2 per cent in mechanical engineering in the EU . The main reason for the growth edge was the industry’s export success which, since the start of the 1990s, has led almost continuously to increasing foreign trade surpluses with machines and equipment. Around half of the export surplus of €4.5 billion in 2016 was represented by machine tools and machines for the plastics industry and wood processing industry.
However, mechanical engineering companies have been unable to avoid the low investment demand on key sales markets in the last four years and have suffered high export losses, especially in Central and Eastern Europe, Russia and China. In the case of standard products, the industry is also coming increasingly under pressure due to imports. The fact that production output and exports have generally risen since 2013 is further proof of the competitiveness of the Austrian mechanical engineering industry.
Domestic mechanical engineering companies have high potential for innovation and will also successfully leave competitors behind in future through pure cost advantages or price advantages, or will be able to compensate for higher market share losses with standard products. “The long-term growth in machine exports from Austria leads to the conclusion that the industry will remain successful in international competition and will also probably assume a positive position by contrast with the economic cycle of mechanical engineering at a European level. Austrian mechanical engineering companies should remain on their long-term growth path of 4 to 5 per cent after adjustment for prices”, was Wolf’s emphatic conclusion.
Enquiries: UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0) 5 05 05-41954;