Austrian Manufacturing Sector Contracts Further in May, with Deepening Contraction in Output and Declining Demand

June 1, 2023

Austrian Manufacturing PMI moves deeper into contraction territory in May

Austria’s manufacturing sector saw an accelerated rate of contraction in May, with latest PMI® data showing deeper cuts to output amid rapidly declining demand. At the same time, there was growing downward pressure on factory prices as increasing competition and an unwanted build-up of finished goods led to more manufacturing companies offering discounts during the month.
Adding to the gloom, Austrian manufacturers grew more pessimistic about the outlook in May. Vacancies were left unfilled as companies looked to adjust to lower production requirements, leading to the first decrease in factory employment levels for almost two-and-and-half years.

The seasonally adjusted UniCredit Bank Austria Manufacturing Purchasing Managers’ Index® (PMI®) – a single-figure gauge of performance calculated from measures of new orders, output, employment, supplier delivery times and stocks of purchases – moved deeper into sub-50 contraction territory in May, down from April’s 42.0 to 39.7. This was its lowest reading since the
initial pandemic-related shutdowns in early-2020.

The worsening performance stemmed from a deepening downturn in new orders, which fell for the thirteenth month in a row and at the quickest rate since October last year. Surveyed firms commented on the influence of rising interest rates and high stocks levels among customers. There were also reports of some clients delaying orders due to the uncertain outlook and in anticipation of lower prices. The survey pointed to weaker demand both at home and abroad, with new export orders showing the steepest decline for six months.

In response, Austrian manufacturers cut production volumes considerably during May. The rate of decline was the fastest since May 2020, although it was still slower than that of new orders as many goods producers continued to make inroads into backlogs of work.

The sustained weakness in output and new orders had a negative effect on hiring activity across the Austrian manufacturing sector in May. Employment levels fell – albeit slightly – for the first time since the end of 2020. There were also cutbacks to purchasing activity during the month, as goods producers reacted to falling output requirements. The decline in buying levels was compounded by manufacturers’ attempts to reduce stocks of purchases, which were generally considered too high given recent improvements in material availability. Indeed, lead times on purchases shortened for the fifth month running in May, albeit with the rate of improvement easing slightly from April’s survey record.

In contrast to the reduction in stocks of purchases, postproduction inventories held by Austrian manufacturers rose sharply and at the quickest rate for eight months. Difficulty shifting stock due to growing competitive pressures, combined with a rapid drop in input costs (the fastest since July 2012) saw a growing number of goods producers offering discounts to customers during May. Average factory gate charges fell at a rate that was the quickest since June 2020 and among the fastest in the series history.

Lastly, May’s survey showed a deterioration in confidence among Austrian manufacturers towards the year-ahead outlook. Expectations were down for the third time in the past four months, after having briefly turned positive in January. Weighing on sentiment was a combination of concerns towards higher interest rates (including the impact on the construction sector) and generally negative trend in demand.

Source: Bank Austria
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