UniCredit Bank Austria AG Industry Overview: The industry climate in early 2018 remains bright
- High business confidence and high capacity utilisation is driving industrial activity forward
- Industry is growing in 2018 by around 5 percent in a similarly dynamic way to the previous year
- Developments in the construction industry remain lively due to good conditions, while the retail climate remains dull despite good conditions
- In the service sector a slowdown in growth is noticeable at the top levels
"The company surveys for the first four months of 2018 show an overwhelmingly friendly economic picture: high business confidence values were measured in all large industry sectors in April, although a portion of the industry must already have passed peak growth," summarises Günter Wolf, economist for UniCredit Bank Austria, speaking of the current industry overview. "Construction companies were assessing their current order position as being even better in April than it had been in the previous months. The business confidence in the service sector is slight and has in fact sunken noticeably in retail. With the exception of retail, the industry climate in early 2018 generally remained sunny."
Industry growth is speeding up in 2018
Austria's industry continues to find itself in a growth phase in early 2018. After the sector achieved an above-average strong increase in production of 4.7 percent in 2017, growth sped up to above 6 percent in the first two months of 2018. It is predicted that production growth will be only a little weaker during the rest of the year. Currently the sector can expect a yearly result of around 5 percent for 2018.
The robust investment economy in Europe remains an essential support to growth, with this driving the high capacity utilisation in many sectors of industry. For the first six months of 2018, industry is reporting utilisation figures for an EU average reaching the pre-crisis level from 2007 for the first time. In Austria itself capacity utilisation is even higher. As a result, the growth of demand for capital goods domestically remains lively in 2018 following record growth of around 8 percent in the previous year. Moreover, the sectors of industry related to construction, particularly the individual areas of steel and metal production, plastic production, and the electronics industry are profiting, at least during the next few months of the dynamic construction economy. As the year progresses construction investments are likely to see a drop in their growth rate, with no decline in demand being feared, however.
During the first months of 2018 the production performance of some large sectors of industry, for example, the electronic, steel, and chemical industries, grew a little more weakly compared to the prior period without the companies losing business confidence as a result. In April the majority of companies in the industries named were expecting further increases in production. The electronics industry at least may, however, have already passed its peak growth point. Other sector heavyweights, such as car manufacturing, machine construction, and metal production, have registered unaltered high production growth since the start of the year and, furthermore, indicated a lasting dynamic industry development in the economic survey in April. The industry climate has therefore remained sunny on average.
Steadily increasing construction activity
Austria's construction industry ended 2017 with an uncharacteristically high increase in turnover of a nominal 7.4 percent. The growth rate remained high in the first few months of 2018 and business confidence among firms continued to rise until April. In April 2018 it was even the case that, as part of the economic survey, more companies than ever before classified their order position as being above the normal level. Decisive for this were the generally better order assessments in civil engineering. In structural engineering and similar construction activities, companies were a little more reserved when appraising their order position in April than they had been in the previous months. "The sunny construction climate should not become any more overcast within the first six months of 2018 at least. This is based on the unchanged advantageous conditions for construction projects, such as the high demand in many areas and the beneficial financial conditions," says Wolf. It is possible that the construction industry may, however, lose some dynamics in the second six months and will grow more weakly overall in 2018 than it did in the previous year, particularly due to the fact that the growth in residential construction in Austria may well have passed its peak.
During the first quarter of 2018 the very high capacity utilisation of companies, which in construction as in the industry overall once more reached the pre-crisis level, led to remarkably high increases in employment from 3 to 4 percent. At the same time, however, the lack of skilled workers increased. In construction, the lack of skilled workers has already proven a central impediment to production during the first four months of 2018 for a third of the companies surveyed, a higher percentage than ever before measured in the economic survey.
Trading climate: depending on industry, sunny to dull
In the vehicle trade, the industry climate remained sunny in April and is signalling further increases in turnover for the following months. However, the majority of the companies were already unhappy with the order position. Furthermore, in comparison to the previous year, the weaker growth in new car registrations in the previous months indicates a cooling in the field's activities. Correspondingly, the vehicle trade will not achieve the high turnover growth of the previous year of around 6 actual percent in 2018.
Austria's wholesale trade continues to profit in early 2018 from the dynamic industry and export activities. During the first months of the year the fields of machine, construction and pharmaceutical wholesale trade recorded above-average strong growth. The wholesale trade areas with consumer-related commodities were growing at a notably slower rate, a development that continues in the comparable retail sectors. The increase in turnover in retail (excluding petrol stations) of 1.2 actual percent during the first quarter of 2018 comes above all from groceries. In contrast, the good conditions have not yet reached companies in the non-food trade. Overall, the industry climate for retail remained dull for April. The entire sector should, however, still profit from the very good consumer atmosphere throughout the rest of the year and exceed, overall, the weak turnover growth of the previous year of 0.6 actual percent.
Service activities are losing a little from their high growth rate
In 2017 the turnover in the service sector rose by a nominal 3.8 percent, at a similar rate to that last seen in 2008. "In 2017 nearly all larger service areas profited from the very favourable economic development in the production sector. Average growth rates were even greater for accommodation and catering entities, and the providers of professional and technical services. Losses remained limited to publishing activities and some smaller divisions such as the security services and cinemas," says Wolf. In early 2018 the industry climate has remained sunny on average. The service industry may by now have lost just a little of the high growth rate of the previous year.
At any rate, service companies lost a little business confidence by April 2018, with a slow-down in growth at high levels being registered. This development is above all due to the endemic pessimism in some large business-oriented service fields, such as IT services, recruitment, and advertising. At the same time, however, the companies in the field of transport and in freelance professions had become even more optimistic regarding the next few months. In sum, the results of the economic survey for the service sector indicate that, with industry and construction as the central clients of the business-related service sectors, there will continue to be strong demand, but the sectors have in part already passed their growth peak.
Enquiries: UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0)5 05 05-41954