The Austrian economy is starting the second half of 2017 under excellent general conditions. "The economic mood in Austria has improved constantly since the beginning of the year. It has actually reached a 6-year high since the start of summer. The strong upturn in Austria will continue in the second half of the year. This is underlined by the rise in the UniCredit Bank Austria Business Indicator to 3.5 points in June", said Stefan Bruckbauer, UniCredit Bank Austria Chief Economist, with confidence. In the second quarter of 2017 the Indicator attained a substantial average value of 3.2 points. It therefore suggests a further slight rise in economic growth compared with the start of the year. "The continuing upward trend in our Business Indicator in the second quarter of 2017 points to another increase in economic momentum. The Austrian economy therefore experienced the highest upward movement since 2011 with an increase of around 2.5% in the first six months of the year", said Bruckbauer.
The improved economic mood at the start of summer is attributable almost entirely to the positive growth in industry. As a result of the good international conditions, which have led to a revival of global production and trade for some months, industrial companies in Austria are enjoying a strong tailwind. The prospects are regarded as more optimistic, a fact that is reflected in the highest level of industrial confidence since 2010. Whereas the mood in the construction industry is consolidating at a high level, confidence in the service sector has increased once again. "The economic mood in Austria in the middle of the year is characterised by greater optimism for the most part among entrepreneurs. Industry and service providers, but also the construction industry are still experiencing a boost. However, consumer confidence has declined compared with the previous month for the first time since autumn 2016. But Austrian consumers are also still very optimistic", said Bruckbauer.
Buoyed by the good mood, the Austrian economy will largely be able to maintain the rate of growth from the last few months in the second half of 2017. Economic growth in Austria will remain dynamic because global trade has developed positively thanks to newly industrialising countries and is stimulating the economy in Europe and Austria. Although international support is likely to stop increasing, it has been well-consolidated. Investment will also therefore be boosted, especially since capacity utilisation in Austria has reattained the long-term average level for the first time since the financial crisis.
The positive trend in equipment investments, especially in vehicles, and the increase in building investments should continue assisted by the still favourable financing conditions. In spite of the advantageous export situation, domestic demand will remain the major growth driver in the second half of the year since private consumption has not yet shown any indications of a slowdown in the pace of growth.
"We have substantially increased our GDP forecast for 2017 from 1.8% to 2.3%. Firstly, the strong support for exports due to the global recovery is proving to be stable. Secondly, the improvement in the situation on the job market can compensate for the decreasing impact of last year’s tax reform on private consumption more significantly than we originally expected", said UniCredit Bank Austria Economist Walter Pudschedl. According to the estimate by the economists of UniCredit Bank Austria, the economic risks have fortunately been reduced in the last few months, especially at the political level.
Unemployment decreasing in spite of structural problems
The strong economic upturn will lead to a further improvement in the situation on the Austrian job market in the second half of the year. The growth in employment will continue at a high rate after the average increase of 1.8% in the first six months of the year and will reduce unemployment in Austria.
"We are anticipating a decrease in the unemployment rate to at least 8.7% as an annual average for 2017. Backed up by recently adopted measures such as the employment bonus and the 20,000 Campaign, the improvement will still continue provisionally in 2018 to 8.5%. However, the unemployment rate will still be more than 2.5% higher than at the start of the financial crisis", said Pudschedl. The recent positive development on the job market is, however, accompanied by signs of structural problems and imbalances in qualifications. The qualifications that are being sought on the job market differ from existing qualifications, a fact which is reflected, for example, in the disproportionately high increase in the number of vacancies in some subareas during the last few months in spite of a large labour pool.
Lower inflation expectations hinting at a cautious reduction in bond purchases by the ECB
After an average rate of 2.0% in the first half of the year, inflation in Austria will slow down slightly in the next few months. Energy prices will probably dampen inflation towards a figure of 1.5% with the result that it will decrease to 1.8% as an annual average for 2017. In spite of the positive economic situation, very little pressure on prices can be seen on the demand side on account of the existing output gaps. Only in some service sectors, e.g. tourism, culture and leisure, and housing are prices tending to rise more in Austria.
Especially as an average in the eurozone, inflation is moderate at less than 1.5% for the current economic situation in the middle of the year on account of the output gaps that still have to be closed. "The ECB will choose a cautious exit scenario from the current bond purchase programme on account of the moderate inflation rate. In September 2017 the ECB could therefore announce a reduction in the monthly purchases to €40 billion for the first six months of 2018 and aim at a further reduction to €20 billion per month in the second six months of 2018. Only after the discontinuation of the programme will the zero interest policy of the ECB end in the first few months of 2019", concluded Bruckbauer.
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Enquiries: UniCredit Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel. +43 (0) 50505 - 41957