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28.03.2018

UniCredit Bank Austria Purchasing Managers’ Index in March

  • The UniCredit Bank Austria Purchasing Managers’ Index, currently at 58 points, continues its strong growth trend, but growth stopped increasing
  • Due to the slower growth of new business, domestic companies slowed production expansion
  • Job creation continues at a slightly slower pace
  • Price increases in purchase is are decreasing, more so than on the output side
  • Austria's industry continues to be on course for a 4.5 per cent output growth in 2018, but trade policy tensions increase risk

Austria's industry continues to be very strong at the beginning of spring, but is now past the peak of economic activity. “The UniCredit Bank Austria Purchasing Managers’ Index is currently at 58 points, which puts it way past the 50 point mark, which indicates industry growth in Austria. However, the indicator decreased for the third month in a row in March, based on the all-time high of 64 points in December 2017,” says UniCredit Bank Austria chief economist Stefan Bruckbauer.
UniCredit Bank Austria's Purchasing Managers’ Index has continuously been above the growth line and therefore points towards the longest growth phase of Austria’s industry since records began being kept in October 1998. “Austria's industry left the particularly strong growth phase just around the turn of the year 2017-18. The industry dynamics continue to be above average at the beginning of this spring. However, almost all subindicators of the UniCredit Bank Austria Purchasing Managers’ Index have continued to drop for the last three months. Production output, new orders, and job development, as well as stock and pricing trends point towards reduced activity in Austria's industry,” according to Bruckbauer.

New order growth drops for the third consecutive month
The decline in the UniCredit Bank Austria Purchasing Managers’ Index in March is mainly due to changes in new orders. The index for order development declined to 54.4, which is a reduction of almost 3.5 points. “The growth of new orders decreased for domestic as well as international orders in March. Domestic corporations, therefore, slowed down the expansion of their production output. Despite the third consecutive decline, the order environment continues to be above-average for the Austrian industry, and production also continues to show stronger growth than the long-term average,” says Unicredit Bank Austria economist Walter Pudschedl.

The basic conditions for the domestic industry are excellent for the beginning of this spring, despite a slowdown in the speed of growth, which, among other things, is shown by a continuous increase in backlog of orders. The increase in production capacities in March was apparently not sufficient to complete all new orders. Backlog of work has been increasing in Austria's industry for more than two years now. Delivery times have been increasing for the last 4.5 years and have increased at a higher speed in March.

Even more jobs
In Austria manufacturing continues to be the key driver in creating new jobs in the domestic economy in March. Job growth continued to increase strongly but at a slightly slower pace than during the previous month. “Compared to last year, job growth in manufacturing has increased by more than 3 per cent in the first quarter of 2018. That is equivalent to an increase of 20,000 jobs. This means that 25 per cent of the job growth in the Austrian economy comes from industry, even though the industry sector only accounts for about 17 per cent of total employment,” says Pudschedl.

In addition, the unemployment rate in manufacturing has decreased to an average of 4.3 per cent in the first three months. The labor market situation is therefore significantly better in the industry sector than in the overall economy, in which the unemployment rate in the first quarter of 2018 is more than twice as high, at 8.8 per cent.

Muted price increase in March
The strong upward trend of commodity prices has slowed down in the meantime. “The increase of purchase prices for primary materials was significantly lower in March compared to the previous months. The boost in output prices continued at only a slightly slower pace and this shows that it was possible to pass on some of the higher costs to customers. The earnings situation of companies tended to be slightly better in March than in previous months,” says Pudschedl.

Outlook becomes more uncertain
The current UniCredit Bank Austria Purchasing Managers’ Index shows that, after a very successful start into 2018, the Austrian industry is likely to have moved past the most dynamic growth phase. The survey results in almost all sections are trending downward. The ratio of incoming orders to inventory decreased markedly in March.

With a ratio of just above 1, this is the lowest it has been since summer 2016. This industry trend indicator for the next three to six months, which has been an extremely reliable indicator in the past, points toward a slowdown for the domestic industry. The index for production expectations, established based on the survey, is currently at 64.4 points, suggesting a clear increase in industrial production for the coming twelve months, although it has decreased to the lowest value that it has been for almost a year.

“The downshift of the UniCredit Bank Austria Purchasing Managers’ Index in March is driven by two factors. First, it seems evident that global trade has moved past the phase with the highest dynamics. Second, concerns about possible consequences of US protectionist policies are reflected. However, given the still very favorable growth environment, we still see the Austrian industry on course for a production increase of around 4.5 per cent,” says Bruckbauer. Although, if the trade policy tensions increase or escalate, the changed risk situation will have impact on the growth prospects for Austria´s export-oriented industry.

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Inquiries: UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0)5 05 05-41957;
Email: walter.pudschedl@unicreditgroup.at