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29.01.2019

UniCredit Bank Austria Purchasing Managers’ Index in January:
Economic growth of Austrian industry continues to lose momentum at the start of 2019

  • UniCredit Bank Austria Purchasing Managers’ Index drops to 52.7 points in January; the lowest in 30 months
  • Domestic economy no longer able to compensate for negative external impact: New orders in the sector are dropping for the first time in three years, predominantly as a result of declining foreign demand
  • However, production output in January still expanded at an unabated pace to clear order backlogs and the creation of new jobs in the industrial sector continues 
  • Drop in oil price slows input price increase, however, no improved earnings situation for domestic companies 
  • Medium-term business prospects gaining slightly: Industrial growth stabilising at up to 3 per cent in 2019 

The slowdown in the Industrial sector continues: “The UniCredit Bank Austria Purchasing Managers’ Index dropped to 52.7 points at the beginning of 2019. This means that the domestic industry is starting the new year with the lowest growth rate in three years. The downward trend has continued since the all-time high of 64.3 points reached at the turn of the year 2017/2018. However, the current index is still above the long-time average figure”, stated Stefan Bruckbauer, UniCredit Bank Austria chief economist. 

While at the beginning of 2019 the German Purchasing Managers’ Index for manufacture dropped below the neutrality limit of 50 points for the first time in more than four years, the Austrian index continues to be in a range indicating growth. Austrian industry also has surpassed the eurozone average for three consecutive years and, most recently, by an even bigger margin. “The growth trajectory of Austrian industry continues even following the drop in the UniCredit Bank Austria Purchasing Managers’ Index”, was Bruckbauer’s comment in relation to the latest results of the monthly survey amongst domestic industrial companies. He added: “However, the domestic sector is feeling the negative impact from abroad more strongly by now.” Backlogs of work remain stable at a high level resulting in a continued expansion of production. The pace of employment growth slowed only marginally, although new orders fell slightly as compared to the previous months for the first time in three years. 

Less new business for the first time in three years
Export orders have decreased on a monthly basis since Autumn 2018. Domestic demand was able to compensate for the decline to a large extent over previous months; in the meantime, however, the lack of orders from abroad has become too pronounced. “New export business has dropped for the fourth month in a row in January 2019. This is the most serious decline since Autumn 2012, i.e. in more than six years. Therefore, new business on the whole has experienced a downward trend for the first time in 36 months”, stated Walter Pudschedl, UniCredit economist, and added: “Despite the decline in orders, domestic companies even expanded output at a slightly increased rate at the beginning of 2019 due to the high backlogs of work.” In addition to further increasing back orders, longer and longer delivery times are also an indication of the slow reduction of existing capacity bottlenecks in the domestic industry. 

Continued strong employment growth, but at a reduced pace
The labor market also reflects the slowdown in the slowdown of Austrian industry. Employment in manufacturing increased by 3.1 per cent in 2018 as a whole. The sector generated more than 18,600 additional new jobs. However, there was already a drop in job creation in the second half of the year. The employment index fell to 55.3 points in January, the lowest figure since the beginning of 2017, and therefore, a further slowdown in employment growth can be expected in 2019. “The average rate of unemployment in manufacturing experienced a sharp decline to only 3.8 per cent in 2018 and will drop further toward 3.5 per cent. Unemployment is particularly low in the industries of Upper Austria, Tyrol and Styria. The sharp increase in available jobs not only in these federal states and the relatively low rate of available employees, predominantly in vehicle industry, metalworking and mechanical engineering, demonstrate that the search for a sufficient number of qualified employees will become a great challenge for domestic companies in 2019”, states Pudschedl. 

Upward price trend slowed, strongly in purchasing but little in sales 
There was another slowdown in the price increase for purchasing primary and raw materials in January. In addition to the declining boom in Austria´s industry, which reduces the pressure to increase the prices of many raw materials due to demand, the sharp drop in raw oil prices was again a crucial factor for the current trend. “While there was a significant slowdown in the average price increase for raw and primary materials in January, there was little change in the comparatively low rate of output price increases. As a result, there was no relief for domestic companies. At the beginning of the year, average earning situation did not improve in light of still-high cost dynamics in purchasing and restraint in adapting output prices due to demand”, stated Pudschedl. 

Slowdown but no slump
The renewed drop in the UniCredit Bank Austria Purchasing Managers’ Index in January by at least 1.2 points as compared to the previous month signifies the continuation of the economic downturn in Austria´s industry which started a year ago. By now, this comes very close to the neutrality line of 50 points up to which growth is indicated. There are increasing worries in relation to an imminent significant collapse of domestic industry considering the sharp decline in export orders and a worsening international environment. 

According to the assessment by the UniCredit Bank Austria economists, however, there are several factors contributing to a stabilisation of the economic recovery in Austria´s industry in 2019 and not a slump. In the first place, Austrian companies have growing order backlogs, which can only be cleared slowly due to the existing capacity bottlenecks, which is also reflected by the strong growth in employment. Secondly, the companies are still raising their quantity of purchases of raw and primary materials and primary material inventories are still building up. Thirdly, the stocks of finished goods did not increase in January despite unchanged strong output expansion, which indicates continued healthy demand for now. Finally, the current particularly sharp decline in export orders, which also caused new orders on the whole to slip into the red, is associated with problems in the automotive industry due to new exhaust emission tests. The current order information therefore is likely overstating the downward industrial economic trend at the moment. 

The renewed increase in the business prospects up to the end of the year also indicates no imminent slump in industrial demand. The index value of 54.6 points, which is below average when compared over several years, also shows increasing optimism of the domestic companies since December, albeit only moderately. The medium-term business prospects for companies in the eurozone are estimated even slightly higher at 57.8 points. “Following an increase in industrial production by just over 3.5 per cent in 2018, we expect a slowdown in 2019; however, we do not expect a slump despite the currently unfavourable order trend. We assume a moderate growth trajectory for domestic industry in 2019 with a plus of up to 3 per cent, although forecast risks rather indicate a drop due to the current environment”, concluded Bruckbauer. Even more international headwind has to be expected for the export-oriented domestic industry, in particular during the second half of the year and most of all in 2020. 

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Inquiries:   UniCredit Bank Austria Economics & Market Analysis Austria 
                  Walter Pudschedl, Ph.: +43 (0)5 05 05-41957;
                  Email: walter.pudschedl@unicreditgroup.at