UniCredit Bank Austria Business Indicator:
Austria’s economy stabilises at a moderate growth rate

  • The UniCredit Bank Austria Business Indicator increased to 2.2 points in May – the first improvement in economic sentiment for seven months 
  • Optimism for the domestic economy despite the growing challenges in export activity 
  • Austria’s GDP growth predictions remain unchanged at 1.4 per cent for 2019 and 1.3 per cent for 2020, but there are mounting risks due to trade conflicts 
  • No further decline in the unemployment rate over the course of 2019 
  • Oil prices dampen inflation in 2019 to an average of 1.7 per cent

The downturn in economic sentiment in Austria has at least reached a temporary end. “The UniCredit Bank Austria Business Indicator increased to 2.2 points in May. For the first time in seven months, the sentiment in the Austrian economy has improved,” says UniCredit Bank Austria chief economist Stefan Bruckbauer. After the significant downturn, starting from the economic peak around the turn of the year 2017/18, the domestic economy is now stabilising at a more moderate growth rate. “Domestic demand, in particular from consumers, is currently contributing to economic growth in Austria. However, over the past year and a half, a considerable amount of momentum has been lost due to the slowdown in the global economy. As a result, growth rates have halved from around 3 per cent since the economic peak. However, the domestic economy is likely to continue with this calmer pace, which approximately corresponds to the level of potential growth,” explains Bruckbauer.

Stabilising economic sentiment 
The improvement of the UniCredit Bank Austria Business Indicator for the first time in over half a year does not represent a turnaround, but is at least a sign that the economic sentiment is stabilising after a long downturn. This is largely due to the positive sentiment among domestic consumers, which even reached the highest value for the current year in May. The continued decline in unemployment, increased wage developments and reasonably supportive fiscal policies, such as the “Family Bonus Plus”, were all contributing factors. 

Based on the positive consumer sentiment, optimism in the service sector is barely diminishing. In terms of construction, the sentiment even improved again in view of full order books and also reached an annual high. “In the individual sectors of the Austrian economy, in most cases, the sentiment improved in May. Even the domestic industry has regained confidence for the first time in three months despite the continued downturn for the export environment. The indicator for international industrial sentiment fell to the lowest value since the summer of 2013,” says Bank Austria economist Walter Pudschedl. While a slight upward trend can be seen for most European countries, developments in the USA and in some emerging markets are currently placing increasing burdens on the Austrian export industry. 

Private consumption contributes to growth in Austria
In the domestic economy, after the slowdown in economic growth in the first quarter of 2019 to 1.4 per cent year-on-year, there are now signs that the economy is stabilising. “The downward trend seems to have stopped. In the months ahead, economic growth is expected to be at approximately the same level as the beginning of the year, driven by domestic demand, particularly consumption. As a result, we expect economic growth of 1.4 per cent for 2019 as a whole,” says Pudschedl. 

The prospect of a possible slight recovery in the global economy, which would positively impact the domestic export industry, has now been significantly reduced in view of the ongoing uncertainty caused by the US trade policy. The risk of a US recession in 2020 is still apparent and will also impact growth in Austria. In 2020, Austria can only expect economic growth of 1.3 per cent under the difficult international framework conditions. 

Labour market begins to feel the effects of the slower economy 
The slowdown in the economy at the beginning of the year is now having an effect on the domestic labour market. As a result of declining employment growth, the number of unemployed people has even increased since the spring according to seasonally adjusted data. The seasonally adjusted unemployment rate, which fell to 7.3 per cent in the interim, is now 7.4 per cent in the middle of the year. “Despite the slowdown in the economy, the decline in unemployment year-on-year will also continue in 2019. However, after an annual average of 7.7 per cent recorded in 2018, we only expect a reduction to 7.4 per cent for 2019,” says Pudschedl. To date, economists at UniCredit Bank Austria expected an annual average unemployment rate of 7.3 per cent for 2019. 

Inflation remains low
Due to the slower start to 2019 driven by energy prices, average inflation in the first half-year of 2019 fell to 1.7 per cent, compared to 2.0 per cent for 2018 as a whole. The positive momentum derived from the price of oil is expected to continue to abate in the coming months. This will keep inflation low. “We expect inflation to fall to an annual average of 1.7 per cent in 2019, supported by the price of oil. However, strong consumption in Austria will once again ensure that inflation is around three-tenths higher than in the eurozone,” predicts Bruckbauer. Despite predictions of weaker economic growth for 2020, inflation should increase to 1.9 per cent as pressure from the demand side is expected to be slightly higher. 


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