UniCredit Bank Austria Business Indicator:
Economic growth of only 1.6 percent expected in 2019

  • Economic sentiment in Austria continues to cool: The UniCredit Bank Austria Business Indicator fell to 2.6 points in January 
  • The deterioration in the export environment is weighing on the mood of domestic industry and consumers 
  • Growth forecast for Austria lowered to 1.6 percent in 2019. GDP is expected to rise by 1.5 percent in 2020 
  • The economic slowdown will halt the decline in the unemployment rate by mid-2019 at the latest
  • The lower oil price will reduce pressure on inflation in 2019: 1.8 percent average for the year
  • Due to falling inflation and the economic slowdown, there is no prospect of the ECB raising interest rates until the end of 2020

The economic downturn from the all-time high reached at the start of 2018 continued at the beginning of 2019. “In January, the UniCredit Bank Austria I Business Indicator fell to 2.6 points. The gradual cooling of the economy on a broad scale has accelerated somewhat recently. At the beginning of 2019, the mood in the Austrian economy fell to its lowest level for more than two years,” says UniCredit Bank Austria Chief Economist Stefan Bruckbauer. 

Although consumer sentiment has declined in recent months, it is still above average and optimism continues to prevail in the service sector and in construction. On the other hand, sentiment in the export-oriented industry has weakened considerably. 
The weakening economic sentiment is being driven by an increasingly challenging international environment. The European economy lost momentum in the course of 2018 due to an unfortunate combination of events, such as the disruptions in the automotive industry caused by the new exhaust gas test cycle, the uncertainty caused by the imminent Brexit, the crisis in Turkey and sanctions against Russia. By mid-2019, these uncertainties should at least partly ease, paving the way for a return to a more favourable European growth environment. However, two important structural factors on the global stage will also weigh on the growth outlook: the slowdown in momentum in China and the consequences of the United States’ protectionist trade policy. 

“In view of the deterioration in economic sentiment in Austria as a result of external factors, we have reduced our growth prospects for the Austrian economy for 2019 from 1.9 percent to only 1.6 percent. This is due in part to a weaker carry-over from the second half of 2018, but also to lower growth drivers, especially at the beginning of 2019,” says Bruckbauer. The economists at UniCredit Bank Austria expect economic growth of 1.5 percent for 2020. The impending weakening of the US economy, which is even likely to lead to a mild recession, will cause further slowdowns in the strongly export-oriented domestic economy. 

No further improvement in the labour market 
The economic slowdown is expected to halt the positive development of the domestic labour market during 2019. The year-on-year decline in the number of job seekers, which has been observed for more than two years, will soon come to an end. The unemployment rate fell from 7.7 percent in 2018 to a seasonally adjusted 7.4 percent at the beginning of this year. “As of mid-2019, the slowdown in employment growth will probably no longer be sufficient to absorb the stable increase in the supply of labour. A further improvement in the unemployment rate can no longer be expected in the weaker economic environment. We expect an average unemployment rate of 7.4 percent for both 2019 and 2020,” says UniCredit Bank Austria economist Walter Pudschedl. 

Slight decline in inflation 
The positive development on the labour market to date, with strong employment growth and increasing wage dynamics, will continue to cause inflation in Austria to rise more strongly than the Eurozone average in the coming months. “In view of the weaker economic outlook, but above all due to the lower oil price, we now expect inflation in Austria to fall to 1.8 percent in 2019, compared with 2.0 percent in 2018. Inflation in the Eurozone is expected to be only 1.4 percent,” says Pudschedl. This means that inflation in the Eurozone will have been below the figure for Austria for more than a decade. 

No further monetary policy normalisation in the Eurozone for the time being 
“In our opinion, the window of opportunity for the European Central Bank’s monetary policy to normalise has closed again with the sharp drop in the oil price and the likely intensification of the economic slowdown in 2020,” says Bruckbauer and adds: “We no longer expect the ECB to raise key interest rates within our forecast horizon through the end of 2020.”


UniCredit Bank Austria Economics & Market Analysis Austria 
Walter Pudschedl, Tel.: +43 (0)5 05 05-41957;
Email: walter.pudschedl@unicreditgroup.at