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28.05.2018

UniCredit Bank Austria Purchasing Managers’ Index for May:
Global slowdown in growth also increasingly felt in Austria – industrial activity remains strong nevertheless

  • In May of this year, the UniCredit Bank Austria Purchasing Managers’ Index registers its fourth slight fall in succession, though at 57.3 points it remains well within positive growth
  • Production increases drop slightly once again, though employment growth continues to rise
  • Uncertainties surrounding trade policies and geopolitical tensions bring export orders to a virtual standstill
  • Industrial activity slows after a strong start to the year, though production increase of 4.5% possible for 2018

Despite the increase in protectionist tendencies and the global sense of uncertainty having a notable impact on world trade, Austrian industry is able to register very strong performance again in May. “The slowdown in the global economy is now impacting on Austrian industry too; in May, the UniCredit Bank Austria Purchasing Managers’ Index dropped to 57.3, primarily as a result of the virtually stagnant export order volumes”, according to UniCredit Bank Austria’s Chief Economist Stefan Bruckbauer. He adds, “Austria’s industry is still moving at a good pace; in particular, employment figures are still growing with great momentum.” The latest indicator, which has now returned to the level of spring 2017 following an all-time high at the turn of the year, reveals that industrial activity in Austria continued to exhibit more momentum in May than elsewhere in the Eurozone as a whole. The provisional Purchasing Managers’ Index for the Eurozone fell to 55.5 points in May, falling short of the Austrian figure for more than two years.

“Furthermore, industries in Austria have increased their production volumes, though production growth rates have notably declined since the end of 2017, currently registering at roughly the same level as a year and a half ago – the main reason for this being the slowdown in orders from abroad”, explains Bruckbauer, summing up the key findings of the index.

Sharp fall in growth of orders
The most notable detail in the latest UniCredit Bank Austria Purchasing Managers’ Index is, once again, the fall in new business, especially in new export orders. “In May, the growth in orders fell for the fifth month in succession. Demand from abroad lost a great deal of momentum, almost to the point of stagnation at present. The order backlogs continue to rise, however, albeit at a slower pace than that witnessed over the previous year and a half”, according to UniCredit Bank Austria economist Walter Pudschedl.

Growth in employment figures remains strong
In May, the rate of employment growth is barely any lower than the already very high level of April. At 61.8 points, the employment index remains very high. “Since the start of the year, employment in Austria’s material goods industry has grown by more than 3.5% to 615,000 jobs. Unemployment in the sector registered a significant drop to less than 4%. By comparison, unemployment figures for the economy as a whole also decreased significantly with a 2.7% increase in jobs; though at just under 8%, the unemployment rate is still roughly double that of the industrial figure”, explains Pudschedl.

Cautious inventory strategy
The domestic industrial companies reacted to the growing economic risks by implementing a more cautious and even more cost-conscious inventory management strategy. “The quantity of purchases increased in May, though once again at a significantly lower rate than in the previous month. This could be attributable to the ever increasing prices on the one hand and to the reduced momentum in demand on the other”, says Pudschedl. Higher commodity prices, particularly for crude oil, once again resulted in input prices rising far more steeply than output prices, meaning the profit situation of the domestic industrial companies is, on the whole, worse than in the previous month. The fall in demand growth is also evidenced by the inventory of primary materials, which has once again increased only slightly.

Prospects remain positive, pace slows and risks increase
Industrial activity has clearly now peaked. In May, the UniCredit Bank Austria Purchasing Managers’ Index fell sharply once again, though remained at a relatively high level in the historic scheme of things. While significant production increases are still anticipated, some partial indicators suggest that growth could potentially slow down further over the coming months.

New business has slowed down significantly, especially from abroad, where growth in incoming orders has virtually ground to a halt. The ratio of new orders to inventories is again slightly worse than that of the previous month. Stocks of finished goods are still a little too low to cope with the increasing incoming orders, meaning further production increases can be expected.

Austrian industrial companies remain highly optimistic, though the strength of this optimism has waned a little. The futures index, which presents the production expectations for the coming twelve months, was also notably lower than the previous month, but at 61.4 points the business outlook remains highly optimistic. After a particularly strong start to the year, industrial activity in Austria can now be seen to be levelling out, primarily in response to a fall in demand from abroad. “The weakening economy that we forecast is now coming into effect, and is in fact a little more pronounced than we had predicted. Nevertheless, we currently see no risk of a recession in the Eurozone or in Austria itself, even though the economic boom is definitively over – at least for now”, says Bruckbauer.

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Enquiries: UniCredit Bank Austria Economics & Market Analysis Austria
Stefan Bruckbauer, Tel.: +43 (0) 5 05 05 41951;
E-mail: stefan.bruckbauer@unicreditgroup.at