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14.09.2007

BA-CA Business Indicator:
Austrians remain optimistic despite financial market upheaval

  • Spirits are even raised slightly in Austria, hope for consumption
  • Investment boom unlikely to ease until 2008
  • A downturn in spirits abroad suggests a further fall in export momentum

In August, the value of the business indicator of Bank Austria Creditanstalt (BA-CA) remained unchanged at 4.7. "Despite all the turbulence in the finance market, the basic conditions for Austria's economy remained favourable in August," says Marianne Kager, chief economist at BA-CA.

Spirits remained high in Austria, both in industry as well as amongst consumers, even rising again slightly after the downturn in July. It was only industry in the euro area that experienced a slight downturn in sentiment once again.

"Austria's consumers and industry ended the summer with optimism", explains Stefan Bruckbauer from BA-CA. Consequently, BA-CA economists are also anticipating economic growth in the third quarter of 2007 of 0.7% compared with the previous quarter and 3.3% compared with the previous year, a figure which lies above the long-standing average. However, growth may be unable to keep pace with the very strong first half of the year. Kager: "Austria's economy will also enjoy above-average growth in the second half of the year, albeit at a slightly slower pace."

Consumption should pick up, exports are slowing down
In line with the components of the BA-CA business indicator, economists at BA-CA are expecting consumption to pick up slightly, whilst seeing a slowdown in the growth of exports. "Consumption will increase again, albeit slightly. However, the yearly average growth in consumption for 2007 will fall short of that seen in 2006", says Bruckbauer. The growth in exports has been slowing down for some months – a trend, which the economists consider will continue in the coming months. The growth in investments will continue to remain very high for the rest of the year, even if it does not turn out to be quite as high as at the beginning of the year. A further rise in inflation to a figure in excess of 2% is expected in the autumn.

For the coming year, economists at BA-CA are assuming a further weakening in foreign demand. This will also reduce growth in investments. However, as regards consumption, BA-CA remains optimistic and even expects things to pick up compared with 2007. "If we weigh up the growth in consumption against falling exports and the reducing demand for investments in 2008, the outcome leads us to anticipate economic growth falling by 1%", says Kager. Thus in real terms, following this year's figure of 3.3%, BA-CA is assuming that the economy will only grow by 2.3% in 2008.

As far as the current property crisis in the USA is concerned, BA-CA sees this as only having a slight negative impact on Austrian economic conditions: the decline in economic conditions in the USA and a strong euro are having a negative impact, although the impact of interest rates rising, albeit more slowly, is positive. "Even if, from today's standpoint, the US property crisis is not expected to have significant direct consequences on growth in Austria, the risks for overall business activity in Austria in 2008 have nevertheless increased", says Bruckbauer.

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