2024-04-22 08:49:07
IV-GS Neumayer/IV chief economist Helmenstein: Slight economic recovery possible during the second half of the year – an upswing would require far-reaching structural reforms
Vienna (OTS) – The industrial association’s economic survey for the first quarter of 2024 is still largely characterized by shadows, but there is occasional light to be seen. As in previous quarters, Austrian industry is still in recession. As a result of numerous ongoing stress factors, this is taking a stubborn course – the recent WIFO spring forecast confirms this assessment, which is reflected in a further reduction in the forecast there for the development of goods production to -1.5%. From an overall economic perspective, the severity of the recession was somewhat mitigated in the first quarter by significant increases in energy production from renewable sources.
At the same time, individual indicators point to a hesitant, gradual, slight improvement in goods production, so that the prospects for the second half of the year are brightening somewhat, as Austrian industry in its entirety – this does not apply to all sectors equally – is in recessionary territory is abandoned. However, this phase will probably not be replaced by a strong, self-sustaining upswing, but rather by a phase of stagnation, and only if there are no further exogenous negative shocks.
“In order to further improve the framework conditions, there are various levers that should be used urgently – these are already known points, such as increasing the volume of work, reducing bureaucratic requirements and ensuring a secure and affordable energy supply,” says Christoph Neumayer, Secretary General of the Industrial Association (IV) at the press conference and further explains: “The wage tax contributes a large part of our prosperity and social system. If the volume of work decreases, income also decreases, while expenses increase. Fewer and fewer people are therefore carrying an ever-increasing burden. In order to increase the overall work volume, we must therefore put an extension of working hours – for example by half an hour per day, i.e. 41 working hours per week – on the agenda. Otherwise we will not be able to maintain our welfare state. If you look at annual working hours, Austria is one of the worst performers in the world. Effortless prosperity is not possible.”
In addition, the tsunami of bureaucracy is increasingly putting a strain on the competitiveness of domestic companies – European and national regulations and requirements concern dozens of people in the companies and paralyze the productivity of the companies. Small and medium-sized businesses in particular can no longer cope with this burden. Last week Enrico Letta presented his report on the internal market. Now the EU heads of state and government are finally recognizing that Europe has a competitiveness problem. “This is not only a positive signal, but also a task for the next EU Commission,” said Neumayer.
“In order to get the location back on track, we also need a stable, secure and affordable energy supply,” emphasizes Neumayer. In particular, the gas shortage that is foreseeable as a result of a stop in gas transit through Ukraine due to insufficient alternative pipeline capacities in Austria would plunge the domestic economy into recession once more – with a drop in value added of the order of 2 percent from 2026, not only would economic stabilization come to an abrupt end, but the worst recession since the 1950s would also be expected, excluding the Lehman and COVID crises.
The results of the current IV economic survey
Companies’ assessment of the current business situation has been consistently weaker for eleven (!) quarters and is therefore still below the zero line. However, the dynamics of the decline have recently lost almost all momentum, so that the current balance is -3 points (following -2 points previously). This is the second time that the assessment of the business situation has developed in the opposite direction in six months. Although it has improved significantly, it remains in negative territory. With a balance of -4 points, the indicator is at least quickly approaching the zero line and shows the lowest negative value in eight quarters.
In the sub-component of business prospects with a horizon of six months, 17% of respondents continue to expect a shrinking business volume over the next six months. However, this still significant proportion of companies that are confronted with persistent recessionary dynamics has more than halved compared to the value at the turn of the year 2023/2024, when it was 37%. However, the proportion of companies with expansion prospects has by no means increased at the same pace, but only reaches 13% of all respondents. The majority of companies – 70% – expect stagnant development.
Both indicators do not yet mark an economic turnaround towards an economic recovery or even an upswing, but the recession in industry is coming to an end. On balance, the IV economic barometer, which is determined as the (weighted) average of the assessments of the current business situation and the business situation in six months, improved from -14.8 points to -3.4 points.
With a balance of -6 following previously -8 points, the total order backlog in the industry is a long way from an upswing level. The proportion of companies with currently underutilized production capacities increased once more by two percentage points to now 30% of all respondents. The loss of order reach continues.
However, there was a slight improvement in the subcomponent of foreign orders (balance +2 following -8). This shows that the global economy has gained momentum despite numerous geopolitical trouble spots and, from today’s perspective, will be at the upper end of the forecasts of supranational organizations. In addition, an appreciation-related headwind is no longer expected with regard to foreign orders, as the European common currency has depreciated by around 3% compared to the previous year compared to the US dollar – despite significant fluctuations in the meantime. The price competitiveness of Austrian exporters on third markets outside the European Union, which is significantly burdened due to their disadvantageous cost position, will at least be somewhat relieved in terms of exchange rates.
In view of the persistently negative economic picture, especially the overall insufficient order books, companies continue to expect a significant decline in production activity in the short term in seasonally adjusted terms. Although the balance of production expectations improves from -28 points to -23 points, this finding only reflects a somewhat reduced pace of production declines.
The further reduced production plans are also weighing on the employment prospects in industry as they tend to be a lagging economic indicator. The value is now -21 points following -35 points. This balance analysis conceals only a marginal improvement in companies’ willingness to hire – only 9% of respondents (following 8% previously) are looking to expand their workforce within the current quarter. With a share of 61%, the absolute majority of companies now intend to maintain their workforce if possible, while the remaining 30% of respondents expect (further) job losses. As a result, a higher fluctuation of workers within the industry, but also across sector boundaries as well as in the social security systems and in the countries of origin of foreign employees can be expected.
At the producer price level, the deflationary scenario, as already announced at the last date, is coming to an end despite increasing underutilization of production capacities. Industrial companies are required to at least partially pass on the continued high and increasing cost burden to prices, so that the balance increases from -11 points to -3 points. Compared to the services component, the industrial goods component still has a price-stabilizing effect, as in previous quarters, but its disinflationary character is gradually weakening. The further dynamics of consumer prices in Austria therefore increasingly depend on whether and to what extent the service sector makes a contribution to monetary stability in its pricing in the coming quarters. If not, bringing the Austrian inflation rate back to a level consistent with stability will be extremely difficult and will only be achieved through years of underperformance in the relevant service sector sectors.
The multitude of economic disruptive factors is having a significant impact on companies’ current earnings situation when viewed as a whole. With a balance of -11 points (following -1 point), almost a third of the companies report a decidedly poor earnings situation, while every fifth company reports a good earnings situation. Over the next six months, 22% of companies expect further losses in earnings, while 13% of companies expect their earnings situation to improve. Accordingly, the balance of earnings expectations is -9 points following previously -27 points.
The IV business survey: On the survey method
387 companies with around 293,800 employees took part in the industrial association’s latest economic survey. The IV economic survey uses the following method: companies are presented with three possible answers: positive, neutral and negative. The (employment-weighted) percentages of these answer categories are calculated, and the economically sensitive “balance” is then formed from the percentages of positive and negative answers, neglecting the neutral ones.
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Marlena Mayer
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