The economic upturn in Austria is stabilising – and the succession of leading indicators and sentiment indicators to prove this is endless. "The Bank Austria economic indicator has been continuing the upward trend of the previous months by climbing to 2.6 points in January. This means the indicator has reached its highest value since summer 2011, which demonstrates that the domestic economy is experiencing strong growth", says Stefan Bruckbauer, Chief Economist at Bank Austria. The Austrian economy is currently benefiting from tailwinds across the board. "It's encouraging to see that not only is our economic indicator continuing to rise but also – and above all – that the economic upturn in Austria is built on a firm foundation. This foundation is becoming firmer and wider all the time, which has enabled all the components of the Bank Austria economic indicator to improve in January", states Bruckbauer.
The rise in the Bank Austria economic indicator points to further widespread improvement in the economic situation in Austria. The factor that had the biggest influence on the overall result for January is increasing optimism in the services sector. Positive development in the construction industry and an increase in consumer confidence also testify to the continued strengthening of the domestic economy. January saw the mood in the domestic industry improve again as well, boosted among other things by the favourable conditions on the international market.
The overall industry sentiment index calculated using Austrian foreign trade shares has achieved its highest value since spring 2011. "The economic mood in Austria is exceptionally high right now and not just as a whole – almost all areas of the Bank Austria economic indicator are above their average of many years' standing too. In addition to the fact that the Austrian economy has been doing well for almost a year, our economic indicator is now also showing the beginnings of an upturn in the global economy, which domestic exports are profiting from", says Bank Austria Economist Walter Pudschedl.
Good results expected for first quarter
The Austrian economy's strong performance in the final quarter of 2016 is continuing into the start of 2017. Domestic demand will be able to maintain its growth rate for the time being. The positive effects of the 2016 tax reform are still being felt, and consumption is benefiting from further strong tailwinds as a result. Furthermore, the current mood following the brief respite in the second half of 2016 speaks for a revival of investment activity.
The increase in capacity utilisation over recent months has increased the need for investment in expansion projects. The export order situation has clearly improved. Following sluggish development in the previous year, export growth is now gathering more and more momentum. At the start of 2017, foreign trade was able to make a positive contribution to economic growth for the first time in over a year. "Thanks to strong and steady assistance from consumers and investors, plus positive support from exporters, in the first quarter of 2017 the Austrian economy will be able to achieve similar growth to that at the end of last year, which amounted to 1.8 percent year-on-year", says Pudschedl confidently.
Flagging growth dynamic following strong start to year
Although the Austrian economy is still currently picking up after the strong start to the new year, its growth rate is expected to gradually slow down over the course of the year. This will be driven primarily by a fall in private consumption. The positive effects of the tax reform will run their course. The rise in consumer prices to an annual average rate of 1.8 percent in 2107 due to higher commodity prices will cause inflation to increase by more than the nominal wage.
The continued strong increase in employment will not be able to offset these two negative factors completely. Even though construction order books are fairly full and there is still some unsatisfied demand following several years of reluctance to invest, investment growth is expected to slow down somewhat over the course of the year due to numerous uncertainties.
In contrast, signs of economic revival in a number of emerging markets, the expected fiscal impetus for the US economy and sound economic recovery in the European Union promise more demand for Austrian exports. "The good start to 2017 gives us cause for optimism. The Austrian economy will grow faster in 2017 than in the previous year. We are currently predicting a 1.6 per cent rise in GDP, even with clear upside risks to our forecast at the moment", says Pudschedl.
In contrast to the previous year, foreign trade will bolster Austria's economic growth again in 2017, at least partially. The slowdown in the domestic economy will be more than compensated for by net exports' contribution to growth as export prospects, which have improved despite numerous political risks, are coming up against a moderate increase in the demand for imports.
Unemployment rising again
The situation on the Austrian labour market is starting to pick up again slightly after the stabilisation phase last year. In view of the good economic situation, economists at Bank Austria are expecting the number of people employed to increase by more than 1 percent in 2017 – which equates to another 40,000 jobs – but the labour supply may grow by even more.
"We expect the unemployment rate to rise from 9.1 percent in the previous year to an annual average of 9.3 percent for 2017", says Bruckbauer.
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Enquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel. +43 (0) 50505 - 41957;