BA-CA Business indicator:
Strong first quarter pushes growth in 2007 to over 3 percent
- Business indicator reaches its highest level since 1990
- First rise in consumption evident, exports and industry still performing well
- Slowdown expected later in the year
The economic indicator of Bank Austria Creditanstalt (BA-CA) rose in April to 4.7, its highest level since 1990. “Confidence abroad and the further improvement in consumer sentiment are responsible for this historic value,” said Marianne Kager, Chief Economist at BA-CA.
Consumer sentiment in Austria rose considerably in the second half of 2006 and the trend was sustained this year. April saw consumer sentiment climb again to reach to its highest level since the survey started. “The further sharp upswing in consumer sentiment in April points to a continuation of the good performance of the retail sector in the rest of the year,” commented BA-CA’s Stefan Bruckbauer.
Together with a further slight improvement in confidence abroad, the upward trend in consumer sentiment in Austria was also strong enough to counter the evident slide in optimism on the part of industry and again push up the overall BA-CA business indicator.
Growth accelerates again in the first quarter
Given the positive trend in the leading economic indicators, BA-CA anticipates that economic growth in Austria in the first quarter of 2007 is even slightly higher than in the fourth quarter of 2006 and will consequently again exceed 3 percent. “The year-on-year growth rate in the first quarter could be the highest in this economic cycle,” added Stefan Bruckbauer. Although industrial output has notably declined compared to the last three quarters, retail, services and the construction sector, boosted not least by the weather, have ensured strong growth.
Investments were again correspondingly strong and growth in private consumption visibly accelerated. In contrast, exports slowed, while imports increased as a result of good domestic demand. Nevertheless, the economists at BA-CA assume that net exports will be positive for the first quarter, albeit at a significantly lower level than in the previous three months.
Over the rest of the year, however, the economists at BA-CA expect a noticeable slowdown in economic growth. Although consumption demand will remain buoyant as a result of the high level of employment, industry has already peaked and weakening demand from abroad is leading to a discernible downturn. The construction industry will not be able to maintain the particularly fast pace of growth it achieved in the first quarter. Economic expansion will weaken accordingly in the second quarter and annual growth rates will slide from over 3.5 percent towards 2.5 percent in the fourth quarter. “Despite the downturn we expect later in the year, the strong first quarter means that Austria will again achieve economic growth of over 3 percent in 2007,” explained Kager.
The economists at BA-CA expect the pace of growth for the second half of 2007 to continue in 2008, but this will lead to expansion of notably less than 3 percent on average for the year. “We assume that the growth rate of 3.1 percent for this year will fall to 2.3 percent in 2008,” said Stefan Bruckbauer of BA-CA commenting on the outlook for next year.