UniCredit Bank Austria Purchasing Managers’ Index in September:
Austrian industry with less momentum at the beginning of autumn
- The UniCredit Bank Austria Purchasing Managers’ Index drops to 55.0 points in September, its lowest level for almost two years, despite continued strong growth
- Low export growth slows down expansion of production
- Employment growth remains robust and even increases slightly
- Strong increase in purchase prices weighs on earnings situation of Austrian companies
- Trade conflict between the US and China and political uncertainties cloud prospects: Medium-term expectations fall significantly, but remain optimistic
The slowdown seen by Austrian industrial firms, which started at the beginning of the year, continued in the autumn. “The UniCredit Bank Austria Purchasing Managers’ Index fell to 55 points in September. Although the indicator continues to point to strong growth, the intensification of the trade conflict between the US and China and its possible negative consequences for global trade, as well as the existing political uncertainties are clearly being reflected,” says UniCredit Bank Austria Chief Economist Stefan Bruckbauer. In September, the Austrian Purchasing Managers’ Index fell to a 22-month low. Since hitting a record level of 64.3 in December 2017, the index has declined in eight of the past nine months. Recent economic policy events have not only influenced current industrial sentiment, business prospects are now also seen somewhat less favourably. “The index for the future output has fallen to 55.8 points. This is the lowest level for almost three years. Austrian companies are less optimistic about the coming months than they have been recently, but continue to expect business to expand strongly to the end of this year's period,” said Bruckbauer. The economists at UniCredit Bank Austria continue to expect an average increase in industrial production of 5 per cent in 2018.
Decline in new business from abroad
The weakening of the current UniCredit Bank Austria Purchasing Managers’ Index is primarily attributable to the decline in new business from abroad. “Additional domestic demand failed to offset lower growth in new export orders in September. As a result, Austrian industrial companies have slightly slowed down the expansion of production. The pace of production growth in September has not been this low since April 2016,” says UniCredit Bank Austria Economist Walter Pudschedl. The combination of lower new business and the slower expansion of production resulted in a further increase in order backlogs in Austrian industry, albeit at the lowest rate for almost two years. Nevertheless, there are still serious supply difficulties, especially in the capital goods sector.
Supply shortages push prices up
The existing supply problems with semi-finished goods and raw materials drove input prices up further in September, as strongly as in January of this year. Austrian companies have seen input prices rise sharply in some cases over the past two years. Despite the slowing pace, rising production continues to necessitate the expansion of companies’ purchasing volumes. Although the high growth rates seen in 2017 and the first quarter of 2018 were not reached in September, the increase that has been recorded for more than 30 months now - longer than any such period since the recovery after the recession in 2001 - is putting upward pressure on prices. “The ongoing rise in production requirements ensured that the increase in purchasing volumes continued in September, which drove up input prices sharply given the existing supply problems. The rising costs were only translated into higher output prices in some cases; this had a generally negative impact on the earnings situation of companies’ domestic operations,” says Pudschedl.
The automotive industry in particular is responsible for high employment growth
Despite the decline in new business and lower expansion of production, job growth accelerated somewhat in September. The sub-index for employment currently stands at 56.7, indicating expectations of a strong increase in employment in domestic industry at the beginning of autumn, although the trend has already clearly passed its peak. Employment in manufacturing grew by more than 3 per cent in the first nine months of the current year. Employment growth was above average in particular in vehicle manufacturing and other vehicle construction, but also in the manufacture of electrical equipment and electronic and optical products. Employment in industry, supported by the vehicle industry, developed particularly positively in the traditional industrial province of Styria, with an increase of 6.5 per cent.
Less optimism, but continued good growth outlook
The increasing uncertainties in connection with US tariff policy had an impact on the strongly export-oriented domestic industry at the beginning of autumn. The UniCredit Bank Austria Purchasing Managers’ Index is again trending slightly downwards, as new business from abroad has declined. As a result, the ratio of new orders to inventories has deteriorated, suggesting that inventories are currently nearly sufficient to handle incoming orders without significant increases in production. “At 55 points, the current UniCredit Bank Austria Purchasing Managers’ Index continues to signal quite strong growth for industry in Austria, despite the decline compared to the previous month. In addition, domestic industry is in above-average shape compared to the rest of Europe: At 52.8 and 53.7 points, respectively, both the European Purchasing Managers’ Index and the index for Germany, Austria’s most important sales market, are below the level of the Austrian index,” concluded Bruckbauer.
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0)5 05 05-41957;