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UniCredit Bank Austria Purchasing Managers' Index in June:
Industrial decline in Austria slows significantly once more

  • The UniCredit Bank Austria Purchasing Managers' Index rose to 46.5 points in June — its highest value since the beginning of the coronavirus crisis, but still well below the growth threshold of 50 points
  • The decline in new orders has reduced significantly, leading to smaller drops in production output among Austrian businesses than in the previous three months
  • The decline in employment levels in domestic industry continues to slow
  • The drop in input and output prices is accelerating again
  • The rise in the production expectations index in June to 45.6 points supports the forecast of a delayed V-shaped recovery of the domestic economy after lockdown

As Q2 drew to a close, the Austrian industrial economy continued to gradually gain ground following the rapid slump that was triggered by the lockdown in March. "The UniCredit Bank Austria Purchasing Managers' Index increased to 46.5 points in June. This is the highest the indicator has been since the start of the coronavirus crisis. However, the indicator is currently still below the threshold of 50 points that would signal growth", says UniCredit Bank Austria Chief Economist Stefan Bruckbauer. Austrian industry is clearly heading in the right direction, but has not yet returned to a growth trajectory following the lockdown. The domestic industrial economy relies heavily on exports and this area in particular is feeling the absence of demand from abroad.

"The increase in the provisional Purchasing Managers' Index for the manufacturing industry in the eurozone in June to 46.9 points shows that the export environment for Austria has improved somewhat. However, industrial production among Austria's key trade partners is once again falling — albeit at a slower rate than in previous months. German industry in particular is still weak, despite the rise in the Purchasing Managers' Index to 44.6 points. Conversely, the French indicator has risen above the growth threshold for the first time since January, giving cause for optimism", says Bruckbauer.

Lowest decline in production since February
Although the Austrian production sector has been impacted by the difficult exit from lockdown for German industry, Austrian industry did benefit from a slight head start over other countries as a result of the earlier easing of lockdown measures. This advantage is reflected in the differing trends for incoming orders from Austria and abroad. "The production index rose to 45.9 points in June. Production declines in Austria were considerably lower than in the previous three months, as the decline in new orders was also significantly lower than before. For the second month in a row, domestic new business has proved to be much more robust than demand from overseas", says UniCredit Bank Austria Economist Walter Pudschedl.

Despite an increase to 37.0 points in June, the export orders index continues to significantly underperform the total new orders index, which stands at 43.2 points. In view of the continuing weak demand, backlock of works at domestic companies declined despite the fall in production, albeit at a much slower pace than in the previous three months. The volume of new orders in June was therefore once again lower than the volume of completed orders.

Employment levels continue to decline for the fourth consecutive month
In June, domestic businesses continued to cut jobs, in line with lower production requirements. However, the employment index has improved for the second month in a row, reaching its highest level since February at 44.1 points. The pace of the decline in employment levels has therefore slowed once again compared with the previous month. "Many jobs have been lost in Austrian industry since the coronavirus crisis began. However, the industrial labour market is much more robust than the market for the economy as a whole, owing to the large-scale application of reduced working hours. While employment levels for the economy as a whole declined by an average of 2.6% year on year in H1 2020, the number of jobs in the capital goods industry was only cut by just over 1%", says Pudschedl.

Although industry accounts for around 17% of the workforce of the overall economy, only 7% of newly unemployed workers were previously employed in an industrial setting. Although the unemployment rate for Austrian industry rose to an average of 5% in H1 2020 compared with 3.7% in the same period of the previous year, unemployment levels for the economy as a whole increased from 7.6% to as much as 10.6 percent during the same period.

While employment levels for Austrian industry during the coronavirus crisis are noticeably more favourable than for the economy as a whole thanks to reduced working hours, the route out of the crisis for the industrial sector is likely to be characterised by less progress in terms of employment. In the services sector, the labour market has already started to build momentum following the initial easing of lockdown measures. The recovery of employment levels in industry is likely to be more of a challenge due to factors such as the sector's considerable dependence on the export business.

Continuing decline in prices
In view of the weak demand, domestic businesses have attempted to boost sales by reducing sales and supply prices. In June, sales prices fell for the twelfth consecutive month, with the corresponding index falling to 42.8 points, the lowest since spring 2009. Despite discounts being offered, demand was not sufficiently stimulated and inventory levels in warehouses increased once again despite the further reduction in production.

By contrast, primary materials inventory levels declined slightly for the first time in three months, although input prices continued to decline at an accelerated pace. "Input and output prices for domestic industrial businesses continued to decline at an accelerated pace in June. Prices have now been on the decline for exactly one year. As a result of the slump in oil prices, cost dynamics have shown a stronger downwards trend than supply prices. However, on average the earnings situation of domestic businesses has not improved during this period due to the decline in sales", says Pudschedl.

End of recession in sight
As a result of the further easing of the restrictions introduced to contain the pandemic, the decline of the Austrian industrial economy slowed significantly in June for the second month in a row. The increase in the UniCredit Bank Austria Purchasing Managers' Index was driven primarily by the sharp slowdown of the declines in output, new business and employment levels. However, the continuing decline in purchasing and sales prices and the sharp increase in inventory levels in finished goods warehouses are clear indicators of the challenging situation with demand. With an average value of below 40 points in Q2 2020, the UniCredit Bank Austria Purchasing Managers' Index points to the worst recession in domestic industry since the financial crisis. As a result, the industrial sector was a contributing factor to what is set to be the strongest-ever decline in the Austrian economy — a drop of around 15% in Q2 2020 compared with the previous quarter.

The easing of lockdown measures and the prospect of a further normalisation of economic activity contributed to the fact that the business outlook for domestic industry climbed to 45.6 points over the course of the year and in June reached its highest level since February. "The upwards trend of the UniCredit Bank Austria Purchasing Managers' Index and the production expectations of businesses support our expectation that the industrial recession and overall economic recession will end in the summer and that a noticeable recovery will begin in H2. With a decline in GDP of around 8% in 2020 and economic growth of around 7% in 2021, we still anticipate somewhat delayed V-shaped economic development. By the end of 2021, Austrian economic output is expected to fall short of the pre-crisis level by around 1%", concludes Bruckbauer.



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