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14.02.2007

BA-CA Business Indicator:
Economy remains buoyant in Q1 2007

  • Stronger growth forecasted for 2007 – 2.8 per cent
  • BA-CA business indicator reaches its highest level since 1991
  • Sharp rise in consumer confidence to record levels in January

The Bank Austria Creditanstalt (BA-CA) business indicator rose from 4.1 to 4.5 in January. "Our business indicator reached its highest level for sixteen years in January", says Marianne Kager, chief economist at BA-CA.

The sharp rise in consumer confidence in January was a major catalyst for the marked rise in the indicator. "In January, consumer confidence reached its highest level since the survey started in 1995", according to Stefan Bruckbauer at BA-CA. The sub-indicators for industrial economic activity in January were – as expected – slightly down on the figures for December but remain at a very high level.

Together with the relatively strong growth in the fourth quarter 2006 this performance also provides a good foundation for the first quarter 2007. "The signs of a sharp improvement in the German economy, in particular, at the beginning of the year together with the sharp rise in consumer confidence are making us more optimistic with regard to the first quarter 2007 than we were", says Marianne Kager. The BA-CA economists are now assuming that growth in the first quarter will fall slightly less compared with the previous quarter and will amount to 2.5 per cent compared with 3.2 per cent in the fourth quarter (extrapolated on an annual basis). As a result, when compared year on year, growth in the first quarter 2007, at 3.4 per cent, could even exceed the figure of 3.3 per cent in the fourth quarter 2006. "Despite a slight downward trend, the annual growth rate in the first quarter 2007 will still be slightly higher than in the past quarter", reckons Stefan Bruckbauer.

Growth forecast for 2007 revised upwards
Somewhat stronger growth in the first quarter and the positive signals from abroad will ensure that Austria's economy grows faster in 2007 as a whole than had previously been expected. "We have therefore increased our forecast for 2007 from 2.4 per cent to 2.8 per cent", says Kager. In so doing, the BA-CA economists are assuming that exports and investment will remain buoyant, even if growth is slightly down on 2006. Private consumption is expected to accelerate growth. "Following good labour market data and the sharp rise in sentiment in recent months, private demand should finally pick up a little in 2007", says Bruckbauer reflecting his optimism regarding consumption. Even if, in the opinion of the BA-CA economists, inflation is likely to increase slightly over the coming months, it will again remain below 2 per cent on average in 2007.

Despite these optimistic economic forecasts for 2007, growth will slow during the year and will only stand at just over 2 per cent at the 2007 year end. Accordingly, economists are expecting growth of "only" 2.3 per cent for 2008, which is, nevertheless, just above the average for the last ten years. The BA-CA economists consider the major risks to their optimistic scenario lie in a surprising slow-down in the international economy and in further disappointing figures for private consumption. Should the international economy slow down faster and sooner than is currently expected, growth rates in Austria would fall below 2 per cent more rapidly. Overall growth could also be lower if private consumption figures are disappointing yet again in 2007. The BA-CA economists currently view both scenarios as unlikely.

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