BA-CA Business Indicator:
Business Indicator Rises Again Due to External Demand

  • 40 percent of the recovery since the recession attributable to foreign trade
  • China 2006 no. 1 export nation – Austria holds approximately 1 per cent of the market
  • Poorer economic conditions in 2007 will cut almost 1 per cent off the growth rate in Austria

The business indicator of Bank Austria Creditanstalt (BA-CA) rose from 3.6 to 4.0 in September. "Somewhat surprisingly foreign demand increased again in September," says Marianne Kager, chief economist at BA-CA. At the same time, however, industry sentiment in Austria and consumer confidence both improved, almost pushing the BA-CA business indicator back to the record level seen in 2000.

In the second half of the year, the Austrian economy is continuing its recovery from the recession which started in 2001 and according to BA-CA economists GDP is now outstripping the long-term trend. Growth rates of 3 per cent and more in recent months have ensured that the dent caused by the recession has been overcome.

According to an analysis by BA-CA economists, the recovery was mainly due to foreign demand. Exports rose much more sharply than other elements of demand and were also more dynamic than imports. "Overall, the Austrian economy has grown by 7.6 per cent since the turnaround in summer 2003 and almost 3 percentage points of this growth was attributable to the stronger momentum of exports compared to imports," continues Kager. This also led to a state of equilibrium in the balance of trade, which this time, unlike 2002, was attributable to strong exports. In keeping with this positive picture, industry is currently posting growth rates of 10 per cent and employment levels in industry have risen again for the first time since 2001.

Since the recovery started in 2003 Austria has seen exports rise by more than 30 per cent, only slightly behind the level of the increase in the volume of world trade. Austria's share of the world market thus remained almost unchanged, while the EU and the USA suffered clear declines at the expense of Asia, and above all, the oil exporting nations. According to the BA-CA analysis China advanced to become the largest export nation in the world in 2006, pushing the USA into 2nd place and Germany into 3rd place. Austria holds 26th place.

"China is now the number one in terms of exports and has a market share of 9 per cent. Twenty years ago it was a modest 1.6 per cent and 11th place,” notes Stefan Bruckbauer from BA-CA. The USA has fallen from 1st place, with its share of the global export market shrinking from 11.3 to 8.9 per cent. Germany has also dropped one place falling to number 3, but remains only slightly behind the USA. Other winners in the global export rankings of the last twenty years are Korea, which advanced from 17th to 10th place, Thailand (+ 22 places) and India (+ 15 places). However, despite its size, India remains in 24th place, slightly ahead of Austria. In the last 20 years, Austria has dropped 20 places, but has been able to retain its 1 per cent share of the world market. "Unlike many of the old industrial nations in Europe or the USA, Austria has not lost any of its share of the world market," says Bruckbauer.

Most of Austria's export success is attributable to machinery and vehicles. "Since 2003 Austrian exports have risen by 30 per cent, and our analyses show that more than 1/3 of this increase or 11.2 percentage points was due to machinery and vehicles," says Bruckbauer.

At the same time, however, this success in foreign trade means that Austria is highly dependent upon the health of the international economy. In the opinion of the BA-CA experts, it has become evident here that the mood in the most important export markets has topped out. "The general scenario for the Austrian economy in 2007 will turn out to be considerably poorer than in 2006, which will result in an overall reduction in the growth rate of almost 1 percentage point," says Kager.

Even if instead of merely supporting growth as in previous years, consumer demand makes a substantial contribution to growth in 2007, weaker exports and weaker investment will lead to economic growth of only 2 per cent in 2007. In 2006 1 percentage point of growth was attributable to consumption, investments and the trade balance, however, BA-CA economists believe that only consumer demand will make such a large contribution in 2007. The contribution made by investments will be halved, while net exports, dampened by higher imports will make virtually no contribution to growth.

On the whole however, BA-CA economists expect that GDP will remain slightly above the trend, but for the time being, there is no sign of the strong momentum experienced in recent quarters. Despite this, however, BA-CA economists expect the level of employment to rise once more in 2007 and unemployment to fall slightly. This trend will be supported by low inflation. The BA-CA economists do not expect a sharp downturn in global economic activity.


Enquiries: Bank Austria Creditanstalt Economics Department and Market Analysis
Stefan Bruckbauer, Tel. 05 05 05 EXT 41951
E-mail: stefan.bruckbauer@ba-ca.com