UniCredit Bank Austria Purchasing Managers’ Index in October:
Industrial activity in Austria is still better than in the eurozone
- UniCredit Bank Austria Purchasing Managers’ Index signalises strong growth of the processing industry in Austria, in spite of a decline to 53.8 points in October
- Due to a further increase in domestic demand, the order situation remained at a high, stable level; however, export orders declined in comparison to the previous month
- Production was expanded at an unchanged speed in October; however, the rise in employment has slowed down slightly
- Austria’s industry remains optimistic, although medium-term business expectations are falling significantly
The upturn in the Austrian industry, which has continued for 4½ years in the meantime, is continuing to lose pace in autumn 2018. “Industrial activity in Austria has been slowing down continuously since the start of this year. The UniCredit Bank Austria Purchasing Managers’ Index fell once again and is presently at 53.8 points, more than 10 points below the December value. However, the indicator value continues to clearly exceed the long-term average and is clearly above 50 points, which continues to signalise growth in comparison to the previous month,” says UniCredit Bank Austria Chief Economist, Stefan Bruckbauer.
Declining foreign demand is now dampening medium-term prospects for Austria’s industrial sector
The slowdown of industrial activity is not only being observed in Austria, but all over Europe. In the eurozone, the preliminary Purchasing Managers’ Index fell in October from 53.2 to 52.1 points, with pressure from the synchronous decline in the two largest economies, Germany and France, to 52.3 and 51.2 points, respectively. “Throughout Europe, the processing industry is losing momentum this autumn. There is a common reason for this. The new orders from abroad, which have provided economic support in the eurozone since mid-2013, have decreased and were even lower in October 2018 than in the previous month”, says Bruckbauer, adding: “The industrial activity in Austria is proceeding slightly better than in the eurozone overall; however, in the meantime, Austrian export-oriented businesses are now noticing the declining demand from abroad considerably.”
Diminishing export business
The falling demand from abroad since the spring peaked in October with a slight decline in export orders compared to the previous month. “The new business from abroad developed as poorly in October as it last did two years ago. As was already the case in the previous months, increasing protectionism in global trade, rising geopolitical tensions and the economic slowdown in many emerging markets curbed demand. However, temporary factors, such as the delivery problems in the automotive industry due to the new exhaust tests, presumably overstated the trend in October,” says UniCredit Bank Austria Economist, Walter Pudschedl.
Due to the further rise in domestic orders, the order situation remained virtually unchanged in comparison to September. In view of the continuing favourable order situation and the existing high order backlogs, the Austrian businesses have maintained the rate of expansion of production at an unchanged level in October. The production index reached 53.5 points again. The expansion of production was not strong enough to prevent a further rise in order backlogs based on the existing order trend. However, the gain was as low as it last was exactly two years ago.
2018 will bring the highest employment rate in the material goods industry since the mid-1990s
In spite of the largely robust order development and expansion of production, the domestic industrial operations created fewer new jobs in October than in the previous month. The sub-index for employment fell to 55.8 points; however, this is still considerably above the longstanding average and therefore also indicates a strong gain in employment in the industrial sector this autumn. “The domestic industry is the job driver of the Austrian economy in 2018 and can chalk up three successes for itself at the same time. On the one hand, employment for the whole year will prospectively rise by more than 3 per cent, which is above average. Therefore, nearly 20,000 new jobs will be created. On the other hand, the domestic industry will reach a new record level since the mid-1990s, with nearly 620,000 employees. And not least, the unemployment rate in the sector will fall to 3.8 per cent on an annual average in 2018 and will therefore be only half as high as in the overall economy,” expects Pudschedl.
Continued good prospects, but rising growth risks
In spite of the slowdown in industrial activities, which is also reflected in the decline of the UniCredit Bank Austria Purchasing Managers’ Index since the beginning of the year, the domestic industry is still on a strong course for growth. The order situation is good, production is being expanded significantly and employment is rising considerably. The price trends also underscore the good economic situation. The purchasing prices are continuing to rise sharply due to scarce raw materials and preliminary materials and demand is strong enough to transfer the higher costs to the sale prices.
However, nearly all of the partial results of the current survey turned out to be weaker than in the previous month. In particular, the declining demand for exports - albeit prospectively temporarily overstated, due to the problems in the car industry in relation to the new exhaust tests - dim the immediate outlook. On the other hand, the ratio between incoming orders and inventories has increased slightly again, in comparison to the previous months. Stocks are not sufficient for fulfilling the incoming orders without additional production increases in the coming months.
“We are optimistic that the industrial sector will be able to reach a real growth forecast of 5 per cent for 2018, with a strong end to the year and thereby also show greater momentum than in 2017,” says Bruckbauer. For 2019, the prospects continue to be burdened by political trends, as well as increasingly protectionist trends in global trade. The annual outlook index determined during the course of the survey weakened considerably to 52.7 points compared to the previous month, and will therefore reach the lowest value since the beginning of 2015. The economists at UniCredit Bank Austria are presently anticipating weaker industrial growth than in 2018 of around 3 per cent.
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0)5 05 05-41957;