UniCredit Bank Austria Industry Overview
Dull autumn for most sectors and little prospect of winter sunshine
- Persistently gloomy climate across almost all sectors in Austria
- Austrian industry continues to face major challenges: Hope for an economic turnaround in the course of 2025 at the earliest
- The construction industry remains in crisis mode, but there are at least initial signs that the situation is stabilising
- Continued subdued economic activity in the services sector, but slight improvement in sales expectations for the majority, albeit with strong sector differences
- Retailers still reluctant to spend, real wage growth should contribute to a turnaround in 2025
Following the slowdown in spring, the tense climate in most domestic economic sectors became more entrenched over the summer. UniCredit Bank Austria's current industry overview shows a uniformly weak economic picture. A pessimistic mood that started in the manufacturing sectors increasingly spread to the retail and service sectors by autumn.
The persistent lack of orders from home and abroad has prolonged the recession in the domestic industry. In the first three quarters of 2024, industry was consequently characterised by a significant decline in production. Production in the construction industry has also been well below the previous year so far this year. This was offset by slight growth impetus from the services sector.
“Following the 1.0 per cent decline in GDP in 2023, Austria's economic output fell again by 0.9 per cent year-on-year in the first three quarters of 2024 due to the weak development in the production sectors. Only the services sector was able to contribute to limiting the decline in GDP with a slight increase, despite very different industry developments”, says UniCredit Bank Austria Chief Economist Stefan Bruckbauer.
The majority of domestic companies started the end of the year with pessimistic production and demand expectations. “The latest economic survey results continue to indicate weak economic development for the coming months. The industry climate was gloomy in all sectors at the start of the final quarter of 2024. Industry in particular and, despite cautious signs of stabilisation, the construction industry continue to face particularly difficult conditions. In the services sector, the situation is less tense and the industry climate is gradually trending towards an improvement”, says UniCredit Bank Austria economist Walter Pudschedl, adding: “The persistently pessimistic production and business expectations indicate that the weak economic development is unlikely to change much in the coming months. Hopes of a noticeable recovery in the domestic economy on a broad basis are being pushed back further. Only in the course of 2025 is the easing of monetary policy and falling inflation likely to put the Austrian economy back on a growth path, supported primarily by the service sector. In view of structural problems, the outlook for industry remains very cautious for the time being, which will dampen the pace of recovery of the economy as a whole in 2025.”
To determine the industry climate indicator, the development of production and sales up to the third quarter of 2024 is compared with the results of the economic survey from October 2024.
Year-on-year production losses decreased slightly in the third quarter
Production output in the domestic manufacturing industry fell by around 4 per cent in real terms in the first three quarters. The recession in industry continued, although the year-on-year decline in production has begun to level off somewhat in recent months.
A few sectors in particular have contributed to this, even increasing their real production output in the year to date. In addition to the food and paper industry and waste and wastewater disposal, this also applies to the pharmaceutical industry, which even achieved double-digit growth. On the other hand, production in many sectors was even more than 10 per cent below the previous year's level. The clothing and textile industry, mineral oil processing, the electrical industry and other vehicle construction experienced such massive capacity cuts. In most sectors, the negative trend slowed over the summer, but the downturn intensified in the textile and clothing industry and in metal production.
“Production expectations in the manufacturing industry continued to deteriorate in the third quarter, increasingly burdened by concerns regarding the competitiveness of domestic industrial companies on global markets in view of high labour cost dynamics and comparatively high energy prices”, says Pudschedl, adding: “The textile and clothing industry, metal goods production, mechanical engineering and the electrical industry are facing the greatest challenges in the coming months due to the particularly gloomy order situation and weak production expectations. In addition, the outlook for automotive manufacturing has clouded over due to problems in Germany, the most important sales market.”
The economy should continue to develop comparatively more favourably in food and beverage production. Plastics production and the chemical industry also appear to be gaining some momentum. Overall, however, the recession in industry is expected to continue in the coming months, although its intensity should gradually decrease.
Stabilisation trends in construction
In the construction industry, there are cautious signs that the economy is stabilising, albeit at a low level. The assessment of the order situation by construction companies improved in the summer, but is still below the long-term average. The decline in construction output has begun to slow down, but still amounts to around 2.5 per cent year-on-year in real terms from January to August. While the situation in the finishing trades has improved since the summer and production has now increased by around 2 per cent in real terms in the current year, production levels in civil engineering are around 5 per cent and in building construction even more than 10 per cent below the previous year.
At the beginning of autumn, contractors assessed the order situation in the construction sector as slightly more favourable overall than in previous months, particularly in building construction and the finishing trades. In civil engineering, however, concerns increased. The order situation is less favourable than the long-term average and continues to promise a very challenging construction industry for the coming months. The weak general economy, the renewed rise in construction costs, which should impact on construction prices, and the still high interest rates on loans will continue to dampen demand. While the burden on building construction, particularly residential construction, will remain high and civil engineering is likely to remain under heavy pressure due to tighter public sector budgets, some ancillary trades will be able to benefit from subsidies for climate protection measures or the craftsmen's bonus and record at least slight growth in the coming months.
“Following the significant decline in the year to date, the overall outlook for the construction industry remains very subdued despite cautious stabilisation trends in building construction and a slight upward trend in some ancillary construction trades. The construction industry is expected to close 2024 with a noticeable decline in production in real terms”, says Pudschedl.
Services economy faces slight improvement
The slowdown in the service economy continued over the summer of 2024, but the sector was still the only driver of growth in the economy as a whole. Developments in the individual areas continued to vary greatly. While positive growth impetus came from the areas of financial and insurance services and leisure services, real estate and housing suffered noticeable losses. There were also real declines in accommodation and food services, information and communication services and transport services (excluding air transport) in the first nine months of 2024.
The sharp fall in inflation continues to support a strengthening of purchasing power, and a gradual easing of the high level of consumer uncertainty should slow or reverse the rise in the savings rate in the coming months, which should have a positive impact on developments in parts of the service sector. After the sector climate deteriorated significantly in the summer, the start of autumn brought an initial improvement.
“At the beginning of the final quarter, turnover expectations in the service sector are significantly more favourable than in the production sector, but lack a consistent, robust upward trend for the coming months. The gloomy industry climate has begun to clear up moderately, but is being weighed down by falling demand expectations in the accommodation sector, among others”, says Pudschedl. In any case, the service sector should remain on course for growth and momentum should gradually pick up somewhat in the coming months.
Retailers benefit from slowly decreasing consumer restraint
The increased purchasing power of consumers has hardly had a positive impact on retail sales so far in 2024 due to the high level of uncertainty and the resulting cautious spending behaviour. By September 2024, sales (excluding petrol stations) had risen by 2.5 per cent in nominal terms, although this only meant stagnation in real terms. The sharpest declines were seen in the non-food sector, particularly in sporting goods and household appliances. Business expectations are very volatile. The high real wage growth of consumers should enable a gradual improvement in the situation in the retail sector.
As expected, the sales trend in the automotive trade (including garages) in the first half of the year has not been able to match the high momentum of 2023, which was driven by catch-up effects. By September, sales had only increased by less than 3 per cent with a sharp decline in momentum. In real terms, this resulted in sales growth of around 1 per cent. In view of the generally cautious consumer sentiment, business expectations fell again slightly at the beginning of autumn 2024, but are significantly better than at the end of last year. Although the sales trend is likely to slow down further for the time being, the industry should be able to close 2024 with slight growth overall.
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UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0) 5 05 05-41957;
E-mail: walter.pudschedl@unicreditgroup.at