UniCredit Bank Austria Purchasing Managers' Index in March:
Considerable signs of life return to Austrian industrial economy
- UniCredit Bank Austria Purchasing Managers' Index increases to 63.4 points in March, the second-highest value since the survey began in 1998
- Significant increase in new orders from Austria and abroad stimulates substantial production growth
- Further considerable acceleration of employment growth
- Supply bottlenecks with raw materials and primary products causing biggest cost increase in ten years and biggest increase in delivery times since the survey began
- Optimism in industrial economy continues to grow: Expectation index for production over the next 12 months climbed to 71.2 points in March
The recovery of the Austrian industrial economy is rapidly gaining momentum. "The UniCredit Bank Austria Purchasing Managers' Index increased to 63.4 points in March. This is the second-highest value reported since the first indicator survey was conducted over 20 years ago. The current indicator therefore points to a considerable acceleration of the recovery among domestic industrial businesses as we head into spring, despite the restrictions currently in place to contain the pandemic", says UniCredit Bank Austria Chief Economist Stefan Bruckbauer. This economic recovery can be attributed to recent improvements in international framework conditions for Austria's heavily export-focused domestic industry. "The whole of Europe is seeing an upwards trend in the industrial economy. The preliminary Purchasing Managers' Index for the manufacturing industry in the eurozone climbed to 62.4 points in March, reaching a new record high. Germany has once again positioned itself as the driving force for economic growth, but the industrial economies of other core European markets as well as those on the periphery are also benefitting from a significant increase in tailwind", says Bruckbauer.
The marked improvement in the Austrian industrial economy as spring begins has been wide ranging. "Domestic businesses benefited from a significant increase in demand in March, which triggered substantial production growth and accelerated job creation. However, the combination of worsening supply bottlenecks and sharply rising costs for primary and raw materials is increasingly causing issues", says Bruckbauer, highlighting some other key aspects of the latest survey.
New business growing rapidly
Every component of the Austrian Purchasing Managers' Index made a positive contribution in March to the significant increase in the index as a whole. Central to this growth was the momentum generated by the improved order situation, which was responsible for almost half of the 5.2-point increase compared with the previous month. "The index for new orders rose to 63.3 points in March. Order volumes were given a boost in part by the shift in expenditure towards goods, due to certain services being unavailable and industrial businesses being less affected by the measures imposed to contain the pandemic. This means that, for the first time since the rebound that followed the first lockdown, domestic demand overtook exports as the main driving force behind new business", says UniCredit Bank Austria Economist Walter Pudschedl.
Increased demand and increasing confidence that the recovery will last led domestic businesses to significantly grow production in March. The production index climbed to 62.9 points. For the first time during the ongoing process of recovery, there was a large-scale production ramp-up. Although the production of capital goods continues to exhibit the strongest momentum, the consumer goods industry is now also seeing positive growth in addition to the intermediate goods industry.
"Despite significant production growth, orders on hand increased at record pace in March. However, domestic companies have not been able to ramp up as quickly as they would like due to a considerable worsening of the supply difficulties with primary and raw materials that have been experienced over the past few months. In particular, the shortage of aluminium, copper, steel and chemical products and electronic components - partly as a result of transport capacity problems - has extended delivery times on both sides of the supply chain at record levels", says Pudschedl. The blockage of the Suez Canal in recent days by a container ship that ran aground has exacerbated problems for the industrial sector in this regard, at least in the short term.
Easing on labour market picks up pace
Against the backdrop of the improved order situation and the growth in production, the employment situation in the domestic industrial sector improved noticeably once again in March. "For the third consecutive month, we are seeing new jobs being created in the industrial sector and the rate at which these roles are being opened up has even increased sharply. The employment index rose to 57.5 points - the highest it has been in two and a half years. However, the increase in employment lagged somewhat behind production growth, meaning that productivity in the sector rose again on average", says Pudschedl. Over the past ten months, the ratio of the production index to the employment index has indicated improved productivity in the domestic industrial sector, following the sudden and massive deterioration triggered by the outbreak of the pandemic in the spring of last year.
At an average of just over 5%, the unemployment rate in the industrial sector is around 0.5 percentage points higher in the first quarter of 2021 than it was in the same period of the previous year. In March, however, for the first time the unemployment rate for the month was lower than that of the same month in the previous year, which was when the outbreak of the pandemic led to the initial lockdown. Following an average of 4.9% in 2020, the economists at UniCredit Bank Austria are expecting an unemployment rate of just over 4% in the industrial sector in 2021. This means that the unemployment rate in the sector will still be around 0.5 percentage points higher than in 2019, prior to the pandemic. However, the industrial labour market situation remains significantly more favourable than the situation in the Austrian economy as a whole, for which an unemployment rate of around 9.5% is expected for 2021.
Cost increase caused by strong demand for primary materials and supply bottlenecks
For the first time in nine months, stocks of purchases levels increased slightly in March. Domestic businesses have significantly upped purchasing volumes in order to meet the sharp increase in customer demand and/or to be better prepared for the expected supply bottlenecks. Given the existing supply bottlenecks and limited transport capacity, this heightened demand has pushed up prices for primary materials and raw materials even further than has been seen in recent months. More than 70% of the companies surveyed stated that their purchasing costs have increased, especially since freight costs have also gone up. "Fierce competition meant that manufacturers were unable to fully offset the sharp increase in purchasing costs by passing it on to their customers. Despite the greatest increase in output prices in almost ten years, on average, the earnings situation in domestic industry deteriorated again in March", says Pudschedl.
Road to recovery continues for industrial sector
The continuing upwards trend of the UniCredit Bank Austria Purchasing Managers' Index in March indicates consolidated recovery in the Austrian industrial economy. The index ratio between new orders and stock of finished goods has increased once more and points to a dynamic continuation of recovery in the coming months, as existing stock will not be sufficient to fulfil orders received without further ramping up production.
"Confidence within the domestic industrial sector has grown - and this includes the long-term outlook. The expectation index, which reflects business assessments by domestic companies for the coming 12 months, has climbed to 71.2 points. After the 7.5% decline in industrial production in the previous year, we expect a strong increase of around 5% in 2021", concludes Bruckbauer.
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0)5 05 05-41957