UniCredit Bank Austria Purchasing Managers’ Index in November:
Domestic orders keep Austria’s industry on the upswing
- UniCredit Bank Austria Purchasing Managers’ Index rises to 54.9 points in November, defying the European trend
- Despite a decline in demand from abroad, new business increased slightly overall due to domestic orders
- Austrian companies expand production in November for the first time in three months, employment growth accelerates slightly
- Input and output prices rise evenly: Cost and earnings situation unchanged
- Medium-term business expectations, however, again weaken, but Austrian industry remains optimistic
The slowdown in the industrial sector seen since the beginning of 2018 came to an end in November. “In November, the UniCredit Bank Austria Purchasing Managers’ Index rose again for the first time in three months, reaching a high of 54.9 points. Austrian industry thus defied the sustained downward trend in Europe. In the eurozone, the preliminary purchasing managers’ index, brought down by developments in Germany and France, continues to show a downward trend and currently stands at 51.5 points,” says UniCredit Bank Austria chief economist Stefan Bruckbauer. This means that the European purchasing managers’ index is once again well below the Austrian level. For almost three years, the Austrian industrial sector has been growing at an above-average rate compared to the eurozone as a whole.
“Domestic industry is proving to be very resistant to negative external influences. Despite fewer foreign orders, new business increased overall and domestic industrial companies boosted production and took on additional employees. Inventories were also built back up to a greater extent, although prices accelerated somewhat,” Bruckbauer states, summing up the most important results of the monthly survey of Austrian industrial companies.
Domestic demand compensates for declining export business
Compared to the development in the eurozone, Austrian industry stands out above all due to the sustained strong growth in new domestic business. “Demand from abroad is slowing down. Export orders declined for the second month in a row in November, but strong domestic demand more than compensated for these losses in November. With more new business in the books, Austrian industrial companies once again expanded production more strongly than in the previous months,” says UniCredit Bank Austria economist Walter Pudschedl. With its rise to 54.8 points, the production index signals very strong growth for domestic industry. Despite the acceleration in production expansion, order backlogs have risen sharply. Domestic industrial companies have clearly underestimated the number of new orders.
Prices rose slightly again
In view of the higher order intake, Austrian industry also raised its quantity of purchases again in November and further increased its stocks of purchases. However, suppliers’ delivery times were considerably extended due to the high level of capacity utilisation. “Despite the dampening effect of lower oil prices, the strong trend in price increases that we have seen for around 2.5 years even intensified somewhat in November. The increase in input prices and the increase in output prices essentially balanced each other out, so that on average the cost and earnings situation of domestic operations did not change compared with the previous month,” says Pudschedl.
As a result of strong demand and increased production expansion, domestic industrial firms again accelerated the increase in employment compared with the previous month. The sub-index climbed to 56.4 points. The indicator shows that although employment growth in domestic industry is now lower than at the beginning of the year, it remains above average in a long-term comparison. “For 2018 as a whole, we expect the number of employees in the manufacturing sector to rise by more than 3 per cent. This corresponds to almost 20,000 additional jobs compared with the previous year. The unemployment rate in the sector will fall from 4.4 to 3.8 per cent on an annual average,” states Pudschedl. In 2018, the unemployment rate in manufacturing will thus only be half as high as the expected figure of 7.7 per cent for the economy as a whole.
Optimism in industry declines
The current Purchasing Managers’ Index surprisingly showed a slight improvement in November, especially in view of the fact that the eurozone is moving in the opposite direction. However, this should not obscure the fact that November only represented a break in the slowdown in the industrial sector that has been underway since the beginning of the year. It is unlikely that domestic demand will, in the coming months, continue to fully compensate for the decline in new orders from abroad as a result of the slowdown in global trade due to less supportive financing conditions and increasingly protectionist trade policies.
In addition, the order situation is no longer as positive as at the beginning of the year, although it remains very favourable by long-term standards. As a result, the index ratio between new orders and stocks of finished goods, a reliable signal for the strength of the industrial sector to be expected in the near term, has become more balanced. Stocks of finished goods are therefore largely sufficient to meet new orders in the coming months without any further acceleration in production expansion.
The index for the annual outlook determined in the survey again weakened significantly compared with the previous month to 51.8 points, its lowest level since the beginning of 2015. “The pace of growth in Austrian industry will slow somewhat in the coming months, as a number of political uncertainties and increased protectionism are dampening the outlook for 2019. With an increase in production of around 3 per cent, domestic industry will nevertheless expand strongly in the coming year, although we are not likely to reach the growth rates seen in the two previous years,” states Bruckbauer. Vehicle construction and the electrical industry will continue to be two sectors with above-average growth rates. By contrast, the outlook for the steel industry in 2019 is much more cautious.
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0)5 05 05-41957;