BA-CA Business Indicator: Austria Increases Real Income Lead Again
- Industry still very optimistic
- Sentiment for exports and consumption down but still good
- Risks decreased for 2007
The Bank Austria Creditanstalt (BA-CA) business indicator fell slightly in December from 4.2 to 4.1, but remained above 4 for the fourth time in a row. "Our business indicator again showed vigorous growth for Austria at the end of 2006", said Marianne Kager, chief economist at BA-CA.
Industrial confidence was also very strong in Austria at the end of the year. Confidence in our most important export market, the eurozone, fell slightly compared to November, but was still at the second-highest level in more than 15 years. Consumer confidence, which has increased considerably in Austria since the summer, also saw a slight slide in December but remained very high. "Year-on-year economic growth in Austria will still be over 3 per cent in the fourth quarter, and we expect that the pace of growth will only have slowed slightly in comparison to the third quarter", said Stefan Bruckbauer, summarising BA-CA's expectations for fourth-quarter growth.
This confirms projections that economic growth in 2006 would come in at over 3 per cent, which is very good in international comparison. In the eurozone, Austria's economy only expanded more slowly than those of Ireland, Finland, Greece and Spain, while the average growth rate for the eurozone as a whole was roughly 2.7 per cent, again half a percentage point lower than in Austria as in 2005. Austria was again able to maintain a good level of prosperity in comparison to the eurozone as a whole in 2006. Higher growth and lower inflation than the eurozone average allowed Austria to again improve its position. "Austria has solidified its rank as the euro country with the fourth-highest real income level in 2006, only Luxembourg, Ireland and the Netherlands are more prosperous than Austria”, said Marianne Kager.
Risks for 2007 somewhat reduced
“The fact that the BA-CA business indicator is still at a high level bodes very well for economic development in the first quarter of 2007”, said Stefan Bruckbauer. In spite of this, the bank's expert expects that some slowing in export growth is inevitable, in part because of the value added tax hike in Germany. This will likely dampen overall economic growth in the first quarter somewhat in spite of relatively robust domestic demand, but quarterly growth will still be over 2 per cent (annualised), and year-on-year growth over 3 per cent.
“We are currently projecting 2.4 per cent annual economic growth for 2007, whereby the global economy is looking better than it was a few weeks ago”, stated Marianne Kager. On this basis, BA-CA sees more potential for an upside correction in this forecast than for a downside correction. In spite of this, the experts at BA-CA are maintaining their cautious projection. "Sentiment will not stay as good as it is now for all of 2007," concluded Bruckbauer.