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29.01.2020

UniCredit Bank Austria Purchasing Managers’ Index in January:
Austrian industry shows positive signals at the start of the new year

  • The UniCredit Bank Austria Purchasing Managers’ Index has begun 2020 with a clear increase to 49.2 points, a firm initial indication of an end to the downturn
  • Underpinned by rising export orders, the improved order situation has led to an almost stable production output
  • The decline in employment within domestic industry slowed considerably in January
  • Significantly better economic outlook: The year’s production expectation index rose to 55 points, reaching its highest value in 15 months

After a two-year downturn that led to a slight recession, signs of stabilisation in manufacturing have become increasingly apparent at the start of 2020. “In January 2020, the UniCredit Bank Austria Purchasing Managers’ Index rose to 49.2 points. As a result, the indicator attained its highest value in nine months. Although we were still below the growth threshold, indicating an ongoing recession in domestic industry, the downturn was significantly less than in the second half of 2019,” says UniCredit Bank Austria Chief Economist Stefan Bruckbauer.

Domestic industry is bottoming out, which is in line with development across the entire eurozone. The preliminary Purchasing Managers’ Index for the eurozone increased to 47.8 points in January, supported by improved indicators in the core markets of France and Germany.

With the indicator increasing by over three points in one month, domestic industry is demonstrating particularly positive development compared to the rest of Europe at the beginning of the year. “The bottoming out of domestic industry at the beginning of the year was primarily caused by improved new export business, leading to the stabilisation of production output. As a result, the decline in employment also slowed significantly. Although ongoing price declines, cautious inventory management and a reduction in order backlogs indicate that the economic situation remains extremely challenging, optimism has returned – at least in the medium term,” explains Bruckbauer, reflecting on the key details of the monthly survey in Austrian industry, adding that “The Future Output index climbed to 55 points in January. For the first time in 15 months, domestic industrial companies are predicting a noticeable production increase over the course of the year.”

Export orders up again
In January, after nine months of occasionally severe drops in production, Austrian industrial companies practically stopped reducing their production output in comparison with the previous month. The production index rose to 49.9 points in January and, as a result, has almost reached the growth threshold. “The production output in domestic industry stabilised at the beginning of the year because the order situation has hardly worsened any further. New business from abroad has even increased slightly for the first time in almost one and a half years. Global trade generated slightly more tailwind and the pressure caused by the problems of the German automotive industry eased,” says UniCredit Bank Austria economist Walter Pudschedl. Despite positive signals, Austrian industry’s order situation was still very tense after the economic slowdown of recent months. The order backlogs of domestic industrial companies continued to decline, albeit at a reduced pace. As a result, average delivery times decreased further.

Cautious inventory management
At the start of 2020, domestic industrial companies continued to manage their inventory in a cautious and highly cost-conscious manner despite the increasing stability in economic sentiment. “Although the input prices for commodities fell sharply once more in January, quantity of purchases again fell significantly, resulting in decreased inventories of primary materials. Due to cost concerns, stocks of finished goods were also deliberately reduced for the second month in a row,” explains Pudschedl. Due to strong competition against a backdrop of continually weakening demand, Austrian producers applied the cost advantages gained as a result of lower input prices at least in part to output prices for the benefit of customers. On average, price trends at the start of 2020 again tended to lead to a slight improvement in the earnings situation of domestic companies.

Drop in employment sees significant decrease in pace
Despite stabilising production output, employment levels at domestic companies continued to decrease throughout January. “At the beginning of the year, the rate of job cuts in Austrian industry saw a reduction for the third month in a row. In January, the employment index climbed to 49.3 points, which, since employment started to drop in the middle of 2019, was the smallest decrease compared to the previous month,” says Pudschedl.

Signs of stabilisation and improved prospects
At the beginning of the year, the UniCredit Bank Austria Purchasing Managers’ Index demonstrated a clear trend towards improvement. At 49.2 points, the indicator pointed to an ongoing recession in Austrian industry with a decline in production, waning new business and reduced employment. However, for the first time since the end of 2017, all sub-components trended upwards and attained values just under the growth threshold of 50 points. In particular, demand from abroad for Austrian industrial products improved significantly after the trade conflict between the USA and China eased, with export orders even showing a slight increase compared to the previous month.

At the start of the year, the inventories of domestic industrial companies decreased once more. As a result, the index ratio between new business and inventories showed further improvement, indicating that stocks of finished goods did not contain enough stock to fulfil orders received without increasing production for the first time since autumn 2018. “The latest survey results from January imply that the upward trend will continue in the near future. For the first time since February 2019, the indicator is likely to exceed 50 points in the coming months, which might mean an imminent end to the recession in domestic industry,” predicts Bruckbauer.

This is a result of a more optimistic medium-term outlook for domestic companies. At the beginning of the year, Austrian manufacturer sentiment reached its highest level since September 2018 despite continued concerns about the outlook and strength of demand in key markets, e.g. Germany in particular. Buoyed by stronger export demand, around 25 per cent of companies predict a production increase over the next twelve months. In January 2020, the Future Output index was only just below the long-term average, with 55 points.

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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