BA-CA Business Indictor:
Moving briskly into the new year
Economic activity supported by consumer sentiment
Industry and exports surging again; sentiment hits 16-year peak
Economic growth in 2007 will be better than expected, but at 2.4 per cent it will fall short of 2006's growth of 3.2 per cent
In October, the business indicator of Bank Austria Creditanstalt (BA-CA) once again rose, moving from 4.0 to 4.2. According to Marianne Kager, chief economist at BA-CA, one explanation for the rise in the indicator was that “business sentiment hit a level in October that has not been seen in the last 16 years.” In addition to this, sentiment on Austria's export markets in Europe has also improved again. “Business sentiment on Austria’s European export markets is better than it has been in the last 25 years," noted BA-CA economist Stefan Bruckbauer.
In conjunction with this, Austrian consumer confidence has also steadily risen, encouraged by the improvement on the labour market, and although consumer sentiment is not at record levels currently, it is still well higher than the average level seen in recent years. On the whole, the economic analysts at BA-CA see this as resulting in a modest improvement in overall growth conditions in the fourth quarter, and thus the slowdown in growth forecast compared to the strong third quarter will be less significant than originally thought: GDP growth in the fourth quarter is now projected at 2.5 per cent, vis-à-vis the rate of 3.6 per cent in the third quarter (compared to the same quarter of the previous year, annualised). As Bruckbauer noted, “The somewhat stronger performance in the fourth quarter has also led us to boost our growth prognosis for 2006 from 3.1 per cent to 3.2 per cent.”
Upswing continues into the next year
According to Kager, the renewed improvement in sentiment and the promising outlook for the fourth quarter will also help form a good basis for a relatively pleasing start to 2007. While economic growth will slow down tangibly compared to 2006, due in part to various restrictive measures being implemented on Austria’s export markets (e.g. VAT hike in Germany), higher interest rates and the deceleration of the U.S. economy, it now appears that the drop-off in growth will be less severe than originally projected. “The prospect of a less significant downturn in early 2007 means that growth will be stronger in 2007 as a whole, and we now forecast a rate of 2.4 per cent,” continued Kager. This will mean that Austria’s economy will once again enjoy growth rates above the long-term trend in 2007, albeit to a considerably lesser extent than in 2006.
In conclusion, Bruckbauer pointed out that, “On the whole, the economic outlook we have been forecasting for quite some time remains intact. We continue to expect a slowdown due to less robust economic performance at the global level in 2007.” Investment growth will also be dampened by these developments. At the same time, however, due to the improvement on the labour market, consumption demand should take up some of this slack, but not all of it. According to BA-CA’s economists, the downside risks in 2007 are mainly related to the development of economic activity at global level, but these risks have not increased.