UniCredit Bank Austria Purchasing Managers’ Index in August:
Foreign demand brings tailwind for domestic industry
- UniCredit Bank Austria Purchasing Managers’ Index confirmed the stabilisation of industry growth in August with 56.4 points, after a slowdown in the first half-year
- Austrian industrial operations are again expanding their production more intensively, as the new business from abroad is now increasing again
- The strong growth in employment slows down in August
- The Austrian industry goes into autumn with slightly more optimism: Strong rise in production by 5 percent within reach for 2018
After the continuous slowdown since the turn of the year, industrial economic activity stabilised over the summer. “The UniCredit Bank Austria Purchasing Managers’ Index reached a very solid 56.4 points in August, after only a minimal decline compared to the previous month. So, the downward trend in the first half of the year did not continue,” says UniCredit Bank Austria Chief Economist, Stefan Bruckbauer, adding: “For the third month in a row, the indicator is at above-average levels, signalling a somewhat more moderate, but still very strong growth in domestic industry in comparison to the beginning of the year.” The industry continues to show strong levels of growth, especially when compared to other countries. For two and a half years, industrial economic activity in Austria has outperformed the European average. With 54.6 points, the preliminary Purchasing Managers’ Index for the eurozone is still substantially lower and the German value, which fell to 56.1 points in August, has also been exceeded in Austria.
“In August, Austrian industrial operations once again expanded their production in order to be able to meet the growing demand, particularly from abroad. Increasing purchase quantities and growing backlogs of work confirm the sustained strong tailwind for the domestic industry. Only growth in employment noticeably slowed down in August,” Bruckbauer explains the most important detailed results of the monthly survey among Austrian Purchasing Managers.
Foreign orders regain momentum
After the slowdown in the first half of the year, domestic industrial businesses have now expanded production output for the third consecutive month in August. In the meantime, the production index has reached 56.8 points again. “New business has once again noticeably increased, as domestic businesses were able to book more orders from abroad in August. Although production output has expanded again, backlogs of work have nevertheless grown,” says UniCredit Bank Austria Economist, Walter Pudschedl. With the increased demand, the suppliers´ delivery times have been extended further, however, at a lower speed than in the previous months.
Based on the slightly more favourable demand environment, the domestic businesses increased their quantity of purchases of primary and raw materials for the fourth consecutive month, benefiting from somewhat decreasing input price dynamics in August. The average stock levels of stocks of purchases consequently increased, but not as much as in the previous month. In contrast, the stock levels in the stocks of finished goods were reduced slightly for the second consecutive month. Despite the improved demand development, preference was given to a cautious stock policy in factories as a result of the uncertainty surrounding the increasing protectionist trends in trade policies. “The input prices, which grew less than in both of the previous months, were largely transferred to the output prices, so that the earnings situation of the companies remained unchanged in comparison to the previous month on average. The increase in output prices was so moderate one and a half years ago,” says Pudschedl.
Employment rising more slowly
Despite the tailwind from the recent growth of new orders and the increased expansion of output, job creation slowed noticeably in August. “Employment in the domestic industry is continuing to increase, but the momentum is now declining significantly. The sub-index for employment declined in August to 56.2. That is the lowest value since the beginning of 2017,” says Pudschedl. Despite the onset of a slowdown in momentum for employment, the number of jobs in manufacturing in 2018 will increase by around 3 percent on annual comparison. Therefore, on average, nearly 620,000 people will be employed in the sector, which is just as many as in the mid-1990s.
Improved prospects for a revival in industrial economic activity
After the half-year phase of the economic slowdown, the current UniCredit Bank Austria Purchasing Managers’ Index confirms the stabilisation of the growth rate in the domestic industry. While the current indicator has fallen slightly compared to July, this is mainly due to the slowdown in the still very strong employment levels. In contrast, most of the other components of the indicator, in particular new orders , not only indicate a stabilisation but quite possibly a revival in industrial economic activity in the second half of 2018.
The ratio of new orders to inventories has improved again. The stocks of finished goods are expected to be under-filled in order to cope with the renewed increase in new orders, so further increases in output are to be expected. Furthermore, the domestic companies also value the medium-term prospects favourably. The Future Index, which indicates the production expectations over the next twelve months, has increased to 58.4 points.
The higher confidence in domestic industry is based on two pillars. Firstly, the trade policy tensions between the USA and the European Union have not escalated for the time being and the threat of higher US tariffs on European cars seems to be off the table. On the other hand, our UniCredit Global Leading Indicator, which combines a variety of early indicators, as well as the recently published IFO Business Climate Index, with the strongest increase in five years, indicate a revival in global trade in the coming months and the export-oriented Austrian industry should benefit from this.
"The provisional easing in the trade dispute with the US and the increasing signs of a new revival in global trade support our positive growth assessment for the domestic industry. We expect a rise in industrial production of around 5 percent for 2018 as a whole," expects Bruckbauer. However, protectionist trends in trade and the multitude of geopolitical tensions endanger the stability of the industrial economy. The downside risks to Austrian industry are therefore still not to be disregarded.
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0)5 05 05-41957;