BA-CA Economic Indicator:
2007 will not surpass 2006
- BA-CA Economic Indicator still very high
- Domestic economic activity guarantee for a solid first quarter
- Uncertainty stemming increasingly from industry sentiment abroad
The economic indicator of Bank Austria Creditanstalt (BA-CA) in February remained at the record level achieved in January of 4.5. "Business sentiment in Austria will guarantee a good first quarter", said Marianne Kager, chief economist at BA-CA.
The continued rise in consumer and business sentiment in Austria has kept the BA-CA economic indicator in a lofty position despite the less positive sentiment in business throughout the euro area. "Domestic demand is increasingly becoming the driving force behind economic activity in Austria", explained Stefan Bruckbauer from the BA-CA Economics Department.
"However, in spite of the daily reports of economic forecasts being revised upwards it is also transpiring that industrial activity worldwide has already peaked for the time being", said Marianne Kager.
2007 will be good, but no further pick-up in pace
Over the last seven years the change in business sentiment in the euro area from September to March has been a very good indicator of how economic activity in the region will progress. "In six of the last seven years the change in business sentiment in the euro area has demonstrated whether growth will ultimately exceed or fall below the autumn forecasts", revealed Bruckbauer. Consumer sentiment and the bond markets managed to achieve this in five of the last seven years, according to the BA-CA economist, while the equities markets were successful in only four of the seven years.
The sentiment indicators for business in the euro area have worsened somewhat in recent months and fallen to roughly the same level as in the autumn of last year. By contrast, they recorded a clear surge in March 2006. Euro area growth then surprising on the upside was equally robust, posting a figure of 2.8 percent in 2006, almost half a percent higher than the EU's autumn forecast. This unerring accuracy of the business sentiment indicator confirms BA-CA's outlook that economic activity has already peaked and a similarly positive surprise in the euro area in 2007 as regards growth is not on the cards. "Following a sound first quarter in Austria we reckon growth will slow somewhat, and at present we see no signs of growth surprising on the upside in 2007 as we witnessed in 2006", said Kager. Domestic economic activity will prove to be robust, but it will be let down by weakening activity abroad.
All in all the BA-CA economists expect a growth rate this year of 2.8 percent. Since all of the other leading indicators in the euro area such as yields, consumer sentiment or the equities markets are still lying just over the figures recorded in the autumn of the previous year, the economic experts at BA-CA believe there is no heightened risk at present of a drastic decline in economic activity in 2008. "Even the equities markets are still obviously assuming that economic activity will remain relatively stable, though we have seen initial warning signs. Despite all of the optimistic forecasts we are currently in the closing stages of an upswing", stated Bruckbauer. Accordingly, the economists at BA-CA believe growth in 2008 will settle at 2.3 percent.
Enquiries: Bank Austria Creditanstalt Economics and Market Analysis
Stefan Bruckbauer, Tel: +43 (0) 50505 41951