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26.02.2020

UniCredit Bank Austria Purchasing Managers’ Index in February:
Improvement in Austria’s industrial landscape – but the consequences of the spread of coronavirus (COVID-19) are becoming apparent

  • The UniCredit Bank Austria Purchasing Managers’ Index climbed to 50.2 points in February, surpassing the growth threshold for the first time in a year
  • First increase in production output for ten months
  • Industry is creating further additional jobs
  • A decline in new business and sudden increases in delivery times indicate the beginning of problems in global value chains
  • Production expectations for the year improve to their highest level in 20 months, but the economic consequences of the spread of coronavirus (COVID-19) are not yet fully considered

After a challenging 2019, the positive signs of stabilisation in the industrial landscape from the beginning of the year were once again confirmed. “In February, the UniCredit Bank Austria Purchasing Managers’ Index increased to 50.2 points. This means that for the first time in exactly one year, the indicator is signalling an end to the recession in the domestic industry,” says UniCredit Bank Austria Chief Economist Stefan Bruckbauer. The upward trend in Austrian industry is above average in comparison with the rest of Europe. While domestic industry crept over the growth threshold, the eurozone could only record a further slowdown in production decline in February. The eurozone’s preliminary Purchasing Managers’ Index for the manufacturing industry increased from 47.9 in the previous month to 49.1 points, primarily as a result of the continued upswing in German industry.

“The current UniCredit Bank Austria Purchasing Managers’ Index and its European counterparts are showing improvement in the industrial landscape. In February, production output significantly increased in Austria, thereby creating yet more new jobs. However, the decline in new business has accelerated and the sudden increase in delivery times is the first indication of problems in global value chains due to coronavirus,” says Bruckbauer.

New business faces a stronger setback
Following positive signs of a revival in global trade, which was reflected at the beginning of the year in a first increase in Austrian industry export orders for almost a year and a half, new domestic and foreign business is once again on the decline. “Demand for domestic industrial products decreased again in February. New orders fell even more strongly than in the previous month, as the tailwind from export business had lessened in the intervening period. Based on the increase in demand in recent months, however, domestic companies significantly increased their production output in February. The production index climbed to 51.5 points,” says UniCredit Bank Austria Economist Walter Pudschedl.

For the first time since April 2019, Austrian companies have expanded their production output month on month. However, for the first time in a year, order backlogs have increased further, which indicates that production capacities have previously been too significantly adjusted to meet weaker demand. Alongside the increase in production in February, domestic companies also increased their personnel capacities for the first time since July 2019. The employment index increased to 51.1 points. At the beginning of 2020, almost 630,000 people were employed in the Austrian goods manufacturing industry.

Uncertainty affecting purchasing policy and inventory management
“While the expansion of production and employment growth in February initially imply a further improvement in the industrial landscape, domestic companies continue to rely on very careful inventory management and have taken advantage of the further reduced input prices only very reservedly when building up their inventories. The current performance of domestic industry is yet to show any negative influences due to the outbreak of COVID-19, however, there does not appear to be any confidence in a sustainable upswing,” says Pudschedl. Even though the rate of the downturn has significantly decreased, companies continued to reduce their purchase volumes again in February. Stocks of primary and raw materials were reduced by almost as much as in the previous month. In the meantime, stocks have already been reduced for the tenth consecutive month for cost reasons, although input prices have again fallen sharply due to the limited demand on global markets. However, since the decline in output prices slowed down considerably, current price trends in February are generally relieving pressure on the profit situation of domestic companies.

Economic effects of the spread of COVID-19 beginning to show
To date, the domestic industrial landscape does not seem to be affected by the economic effects of the spread of coronavirus in China. Rather, the UniCredit Bank Austria Purchasing Managers’ Index, in recording an increase on the previous month and exceeding the threshold for the first time, is currently showing an improved economic situation in Austria. The detailed survey findings show, however: Half of the reported improvement shown by the indicator was due to a real upturn in activity, while the other half was a result of the longer delivery times. As a rule, longer delivery times are always interpreted as a sign that things are adapting too slowly to meet significantly increased demand. At present, however, the longer delivery times are likely indicating disruptions in the global value chains due to economic problems as a result of the spread of coronavirus. The sub-index for export orders fell to 49.3 points in February, after recording four improvements in a row, and even having posted an increase to 50.4 points in the previous month.

“The improvement in the UniCredit Bank Austria Purchasing Managers’ Index in February is not to be prematurely interpreted as a spring awakening for Austrian industry,” says Bruckbauer, adding: “The decline in export orders could be the first evidence of a slowdown in global demand and indicate that the demand shock in China and the disruptions to global value chains following the outbreak of COVID-19 will affect domestic industry in the coming months.” Due to the early timing of the survey, the extent of possible economic consequences might also be underestimated in the current results. In this respect, the relatively significant increase in production expectations over the year for domestic companies should also to be interpreted with caution. The expectation index rose to 60.9 points in February.

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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