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26.04.2019

UniCredit Bank Austria Purchasing Managers’ Index in April:
European manufacturing industry slump hits Austria – longest growth period in 20 years draws to a close

  • The UniCredit Bank Austria Purchasing Managers’ Index continued its downward trend in April: At 49.2, this is the first time in four years that the growth threshold of 50 points has not been reached
  •  The accelerated reduction in order backlogs can no longer compensate for the sharp decline in new orders: Production output is stagnating 
  • But: There is still job creation among the Austrian manufacturing sector at present 
  • Despite the lowest rise in input prices for two and a half years, the profit situation has not improved as it is becoming increasingly difficult to push through higher output prices on the market 
  • Growth expectations for manufacturing companies over the next 12 months have fallen to a four-year low

Austrian manufacturing is beginning to feel the effects of the slowdown in the European manufacturing economy to an even greater extent. “The downturn in the domestic manufacturing industry that began at the turn of the year 2017/18 continued into April. At 49.2, the UniCredit Bank Austria Purchasing Managers’ Index has slipped to below the 50-point growth threshold. This is the first time in four years that the Austrian economy has not expanded,” says UniCredit Bank Austria Chief Economist Stefan Bruckbauer. The longest economic upturn in Austrian industry since the UniCredit Bank Austria Purchasing Managers’ Index was first calculated more than 20 years ago has therefore come to an end. 

This development had become more apparent over recent months as a result of the unfavourable global environment. The Purchasing Managers’ Index for the manufacturing industry in the eurozone, which currently stands at 47.8, remains in negative territory for the third consecutive month. For German manufacturing, the most important trading partner of the domestic economy, the purchasing managers’ index of 44.5 is even lower and has even been below the 50-point line separating growth and expansion for four months now. The six-month decline in export demand has led to an overall sharp decline in new orders for Austria. “Despite the clearing of order backlogs, production output at Austrian plants stagnated in April. While employment still rose slightly, falling purchasing volumes at the beginning of the second quarter of 2019, declining price increases in purchasing and sales and rising inventories of finished goods indicate both currently weaker demand and cautious prospects for the Austrian domestic manufacturing industry,” says Bruckbauer. 

Production output is stagnating
For the first time in four years, production output in domestic goods manufacturing did not increase in April compared to the previous month. At 50.3, the production index largely points to stagnation. “The reduction in outstanding orders in recent months has compensated for the decline in demand, but in the meantime our level of new business has slumped too much,” says UniCredit Bank Austria economist Walter Pudschedl, “The index for new orders fell to 45.9 in April. That’s a four and a half year low. For the first time in the current downturn, domestic orders declined more sharply than export business, not least since the pace of the decline in export orders did not accelerate any further for the first time since the summer of 2018.” As domestic companies have apparently overestimated their existing production capacities for the current demand situation, order backlogs fell sharply in April and delivery times shortened just as much as they did almost six years ago. 

Prudent purchasing policy
In view of the weaker new business, domestic production companies have significantly reduced their purchasing volume more than they have since spring 2015. Stocks of purchases and raw materials continued to increase in April as current production output was too low to fully utilise even the significantly reduced quantity of purchases. “Stocks of finished goods also rose, even at the highest production rate of the current year, due to declining demand. The domestic manufacturing sector is pursuing an increasingly cautious purchasing policy, which is reflected in cost-conscious warehousing,” says Pudschedl. 
Synchronous, moderate increase in input and output prices
The downturn in the manufacturing economy is also having a noticeable impact on price trends. The increase in input prices slowed in April to its lowest rate for two and a half years, despite the clear upward movement in crude oil prices following the announcement of further US sanctions against Iran. By contrast however, falling demand slowed the price dynamics of a number of other important commodities. “On average, the relative cost relief resulting from the slowdown in input prices in April did not lead to an improvement in the earnings situation of domestic companies, as the fierce competition in the weaker demand environment limited pricing power. The dampened increase in output prices was largely in line with that in purchasing,” said Pudschedl. 

For the time being, there’s no light at the end of the tunnel
For the first time in four years, the UniCredit Bank Austria Purchasing Managers’ Index fell below the 50-point growth threshold in April. All components pushed the indicator downwards, mainly due to the sharp decline in new business and the stagnation in production output. Employment, on the other hand, rose in April. However, job creation slowed to its lowest rate in three years. As an economic indicator that is generally known to lag behind, we do not expect a trend reversal in this respect in the coming months, especially since a number of additional details from the monthly survey of domestic production companies highlight a continued weakening of the industrial economy in Austria for the time being. 

“In the months ahead, the UniCredit Bank Austria Purchasing Managers’ Index is expected to remain below the growth threshold, pointing to a recession in the Austrian manufacturing industry. Finally, the renewed deterioration in the new orders-to-stocks-index ratio shows that new business can be covered for the time being even without expanding production,” says Bruckbauer, “In April, the business prospects for domestic companies deteriorated for the year once again. At 52.1, however, future output shows cautious optimism for a turnaround in the Austrian manufacturing industry in the second half of 2019, which is also in line with our expectations.”  

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