UniCredit Bank Austria Purchasing Managers’ Index in February:
Boom for Austrian industry is slowly coming to an end
- The UniCredit Bank Austria Purchasing Managers’ Index in February continues the one-year downward trend with a further decline to 51.8 points - the lowest in three years
- The production expansion of domestic industry at almost unabated speed and the renewed increase in the level of employment are the result of existing production backlogs
- The continued slump in export orders for the second month in succession results in a decline of new business as a whole
- The price implementation power of domestic companies is declining due to slowing demand
- No immediate end of the boom in sight, but the annual forecast for domestic industrial companies continues to be cautiously optimistic with an expectation index of 52.9 points
The slowdown of the Austrian economic boom continues. “The UniCredit Bank Austria Purchasing Managers’ Index in February dropped to 51.8 points - the lowest in three years. Since the all-time high at the turn of the year 2017/18, the Austrian economic boom has continued to deteriorate due to a more demanding export sector in Austria”, stated Stefan Bruckbauer, UniCredit Bank Austria chief economist.
Apart from the global impact of increasingly protectionist tendencies in trade, various events in Europe - such as the disruptions in the automotive industry due to the new exhaust emission test, the imminent Brexit, the Turkish crisis and the sanctions against Russia - have been putting an increasing strain on the export-oriented Austrian industry over recent months.
“Based on a rather good domestic demand, the Austrian industry currently continues on a growth trajectory and therefore appears to be relatively resistant to the unfavourable effects on export within Europe. While the UniCredit Bank Austria Purchasing Managers’ Index in Austria continues to exceed the growth limit of 50 points, the indicator for industry in the eurozone at 49.2 points has dropped below the limit for the first time since summer 2013 – strongly dampened by the decline in Germany to 47.6 points”, said Walter Pudschedl, UniCredit Bank Austria economist.
Production expansion despite declining new business
Austrian industrial companies now are starting to feel the declining demand from abroad more significantly. Export orders in February dropped for the fifth month in succession and declined to a level not seen since more than six years ago. Domestic demand was no longer sufficient to compensate for this loss, so that new business as a whole declined for the second month in succession.
“Despite less new business, Austrian industrial companies expanded production in February at almost unabated speed. In addition, more staff was employed to clear the existing order backlogs. However, the rate of job creation was the lowest in two and a half years”, said Pudschedl. As a result of the contrary development in production and new orders, there was no further increase in the order backlogs of the domestic industry for the first time in three years.
Increased signs of economic slowdown
A number of details of the monthly survey amongst domestic production companies indicate a continued slowdown in the Austrian economic boom. There was no further increase in purchases for the first time since the start of 2018 due to the deteriorated order situation.
The stocks in the finished goods warehouses increased for the fourth month in succession as a result of the weaker demand. Delivery times, which increased significantly over recent months, only extended slightly in February. The development of purchase and sales prices also indicates the deteriorating demand situation. The primary and raw materials prices increased only at the lowest rate in two and a half years, predominantly dampened by the low prices for steel and paper products. The increase in sales prices also dropped. The deteriorating demand increased competition for customers and reduced the price implementation power of the companies.
No end of the downward trend in sight
The renewed drop in the UniCredit Bank Austria Purchasing Managers’ Index in February by almost 1 point as compared to the previous month signifies the continuation of the economic downturn which started a year ago. This comes closer and closer to the neutrality line of 50 points up to which growth is indicated. In view of the further deteriorating international environment, exemplified by the decline in the Purchasing Managers’ Index for the processing industry in the eurozone as well as in Germany, the probability of an imminent end of the three-year growth period of Austrian industry is increasing markedly. This also underlines the development of the index relationship of new orders with the sales depots. The finished goods warehouses have been filled strongly enough for three months by now to handle incoming orders with a lower production output.
In previous downturn phases of the domestic industry, the order backlogs were filled at the latest after four to five months and the production output subsequently decreased. “Even if the current order information could slightly overstate the downward economic trend due to problems in the automotive industry, a decline in production by the domestic industry seems to be imminent without a clear turnaround”, said Bruckbauer, adding: “Without a clear turnaround in incoming orders, our current expectations of a 3 per cent growth in industrial production could prove to be overly optimistic in 2019.”
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Ph.: +43 (0) 5 05 05-41957;