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19.02.2008

BA-CA Business Indicator:
Economy slowing, but no danger of a recession

  • BA-CA business indicator falls further at the start of the year
  • High inflation and negative global economic conditions to blame
  • Further slowdown through to autumn 
     

The Bank Austria Creditanstalt (BA-CA) business indicator, which was recalibrated at the start of 2008, fell from 3.4 to 2.8 in January, continuing the downward trend from the closing months of 2007. Nearly all individual components of the indicator were falling; Austrian consumer confidence is especially down. The indicator is now the lowest it has been in nearly two years and is pointing to an increasing economic slowdown in Austria. After GDP growth was up by an impressive 0.7 per cent from the third to fourth quarter of 2007 and 3.2 per cent in annual comparison, the economists at BA-CA expect that growth will continue to slow in the first three months of 2008. “The poor conditions will cut quarterly GDP growth in half and pull annualised growth down to roughly 2.5 per cent in the first quarter of 2008,” projects Stefan Bruckbauer, deputy chief economist at BA-CA. He adds, “The economy will continue to lose momentum until autumn, but the end of the year will bring improved growth in Austria again.”

High inflation brings increased risks
Inflation is moving to centre stage in the economic outlook. The risk that inflation will remain above an annualised level of 3 per cent long enough to begin eroding the country’s robust economic growth has increased. Uncertainty about commodities prices, the high prices for basic foodstuffs such as grain on the futures markets, and possible second-round effects from the higher energy prices, which push up the cost of living and fees, are increasing inflationary pressures in Austria. High inflation also dampens general sentiment and reduces the probability that the good labour market conditions will spur increased consumption and thereby boost the economy as a whole. “If inflation does not begin to fall as expected in the first half of the year, we will have to revise our current economic scenario,” says BA-CA economist Walter Pudschedl.

Fears of a recession in Austria unfounded
BA-CA’s economists feel that economic risks have increased further in recent weeks, especially because of external factors. The turbulence on the financial markets from the US mortgage crisis is still causing many problems. The weak US dollar is hurting Austrian exports, and the economies of Austria’s most important trading partners are expected to slow. “The poorer international economic conditions will cost the Austrian economy roughly one percentage point of growth in 2008,” says Pudschedl.

After Austria’s GDP gained a healthy 3.4 per cent last year, economists at BA-CA now predict that growth will slow to 1.9 per cent for 2008 as a whole. This projection is based on a conservative assessment that takes all of the current conditions into account and is at the lower end of the estimated growth range. “The Austrian economy will lose momentum, but industry especially is still in good shape in spite of the increasing risks. Any fears of recession are unfounded,” says Bruckbauer, summarising the current state of the economy.

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Enquiries: Bank Austria Creditanstalt Economics and Market Analysis
Walter Pudschedl, tel. 05 05 05 ext. 41957
e-mail: walter.pudschedl@ba-ca.com