UniCredit Bank Austria Purchasing Managers' Index in January: Austrian industry continuous to grow at start of year
- UniCredit Bank Austria Purchasing Managers' Index increases to 54.2 points in January, its highest level in more than two years
- Domestic businesses slow pace of production ramp-up despite continued strong order growth
- Additional jobs created in industrial sector in January for first time in a year
- Massive increase in costs due to supply bottlenecks; highly competitive environment keeps output price adjustments moderate
- Business prospects clouding a little in the short term, but production expectations for next twelve months rising to highest level in three years
Despite a tightening of the lockdown measures introduced to contain the pandemic, Austria's economy remains on a growth track at the start of 2021. "The UniCredit Bank Austria Purchasing Managers' Index increased to 54.2 points in January. This result saw the indicator climb above the 50 points threshold for the seventh consecutive month, signalling growth in the domestic industrial sector. The recovery from the sharp slump experienced in the spring of last year as a result of the lockdown is continuing, with the domestic industrial sector making a very strong start to the new year", says UniCredit Bank Austria Chief Economist Stefan Bruckbauer. This slight improvement over the situation at the end of the year sets developments in Austria apart from the trend seen across Europe as a whole. The Purchasing Managers' Index for the manufacturing industry in the eurozone fell by half a point to 54.7 points in January, driven by a loss of growth momentum in the German industrial sector in particular.
"The positive start to the year for the domestic industrial sector is reflected in further improvements in the order situation and additional production increases. New jobs have been created for the first time since the pandemic began. However, raw materials shortages and delivery delays led to even sharper cost increases and lost earnings as well as to an even more significant increase in delivery times than was seen in the previous month", says Bruckbauer, summarising the key details of the monthly survey of purchasing managers operating in the domestic industrial sector.
Asia and the USA generating increased export demand
The domestic industrial sector continued to benefit from the revival of international trade in January. "Although the pace of order growth slowed somewhat at the beginning of the year, it was still very strong thanks to positive export trends driven by increased demand from Asia and the USA. While new business in the intermediate goods and capital goods sectors was supported by the revival in exports, orders in the consumer goods sector continued to decline", says UniCredit Bank Austria Economist Walter Pudschedl.
Lockdown placed a heavy burden on businesses within the consumer goods industry that do not follow a strong export model. In January, this not only impacted new business but also triggered a decline in production in the sector. Overall, however, domestic industrial businesses have once again ramped up production — though this was not enough to prevent the production index from falling to 51.8 points, its lowest value during the seven-month recovery period that has been seen in the industrial sector. The result was an increase in backlogs of work at the start of the year, driven by the increased momentum in new business.
Jobs created for first time
"In the wake of the succession of job cuts seen since the pandemic began, domestic industrial businesses created additional jobs for the first time again in January. However, the employment index only increased to 51.2 points, suggesting that job creation is still at a very modest level. Viewed on average and taking into account the production ramp-up, productivity in the sector has thus improved slightly once again", says Pudschedl. For eight months now, the ratio of the production index to the employment index has indicated an improvement in 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.
Sharp acceleration in cost dynamics
The Austrian industrial sector is increasingly encountering disruptions to the supply chain. This has impacted the availability of certain raw materials and primary products, due to factors such as a shortage of shipping containers. As a result, suppliers have had to extend delivery times again. At 33.2 points, the corresponding indicator was almost at the same level as in last spring, when production was even shut down during the first wave of the pandemic. In order to ensure availability of primary products, domestic businesses have taken the precautionary measure of increasing the volume of raw materials and primary products they purchase, securing stock that exceeds the volume they actually need for production. Nevertheless, primary materials inventory levels did fall in January, though at the slowest rate in eight months.
"The combination of increasing supply-chain bottlenecks and increased demand due to higher production requirements led to a significant rise in purchasing costs at the beginning of the year. Prices for chemicals, metals and wood increased particularly sharply. Due to the highly competitive environment, however, it was not possible to fully pass on the increased costs to customers; as a consequence, the earnings situation in the domestic industrial sector deteriorated on average in January", says Pudschedl.
Medium-term expectations improve again
The increase in the UniCredit Bank Austria Purchasing Managers' Index to 54.2 points at the beginning of the year is a clear indication that the upturn in the domestic industrial sector that began after the first lockdown in the spring of last year is continuing. However, the outlook is being clouded as a result of the increasing challenges posed by the measures introduced both in Austria and in other countries in order to contain the pandemic. There are diverging trends in the various industrial sectors and the problems in the consumer goods industry are worsening.
Looking ahead, the disruptions that have occurred in the supply chains could impact production, which is an area already affected by a loss of momentum in new business. In the short term, the index ratio between new orders and stock on hand indicates a sustained upturn in the domestic industrial sector, as existing stock will not be sufficient to fulfil orders received without further ramping up production. However, the decline in the index ratio in January suggests that a slowdown is imminent.
"While the extended lockdown is likely to lead directly to a weakening of the industrial economy in Austria, businesses have once again become more optimistic about the medium-term outlook. There are now more tangible prospects of a return to normal economic activity, driven by the start of the vaccination programme and improved production expectations for the next 12 months. The expectation index has climbed to 67 points, its highest level in three years", concludes Bruckbauer.
Enquiries
UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel.: +43 (0)5 05 05-41957;
Email: walter.pudschedl@unicreditgroup.at