Bank Austria Business Indicator:
Austria in a recession
- Bank Austria Business Indicator clearly negative again in February despite slight improvement compared to January
- Economy shrinking much faster in the first quarter of 2009 than at the end of 2008
- Tax relief measures and economic stimulus package to bolster the economy by up to 1.2 per cent in 2009
- Dramatic increase in unemployment putting a damper on consumption prospects
- GDP to fall by 2.2 per cent in 2009 – no growth in Austria in 2010, either
"The Bank Austria Business Indicator improved in February for the first time in a year. However, the marginal increase of 0.1 points to the still very low value of -1.7 is not a sign of an economic reversal," says Stefan Bruckbauer, deputy chief economist at Bank Austria, commenting on the current value. Although domestic consumers have gotten over last month's record low in terms of sentiment and have become a bit more confident in light of the recently released low inflation figures and the upcoming income tax relief measures, the economic situation in Austria's industrial sector has further deteriorated. Order backlogs and production expectations are falling rapidly primarily due to a dramatic decline in foreign demand. There is no sign of improvement in the short term, as business expectations for the European industrial sector, which accounts for nearly three-fourths of the demand for Austrian exports, reached a record low in February. Sentiment has worsened considerably, particularly in Germany, which is the most important destination country for domestic industrial products. "Although the current Bank Austria Business Indicator suggests that the pace of the slide will stabilise somewhat over the next few months, the Austrian economy is shrinking at a pace that has never been seen before," says Bruckbauer.
Economy will shrink until the end of the year
As a result, Bank Austria's economists believe that the first quarter of 2009 will see the most significant decline in GDP during the current economic cycle and expect the economy to shrink by 1 per cent compared to the previous quarter. In the final quarter of 2008, economic output was 0.2 per cent lower than in the previous quarter due to flagging export demand. "The domestic economy is now shrinking for the second quarter in a row. By definition, this means that Austria is in a recession," says Bank Austria economist Walter Pudschedl.
Since there are no signs of an improvement in global conditions, the recession phase will likely last quite some time. Bank Austria's economists expect the Austrian economy to shrink continuously until the end of 2009, although the trend will slow down starting in early summer. "According to our calculations, the recently adopted tax relief measures and the additional fiscal measures will result in growth of almost 1.2 per cent in 2009 compared to a scenario without support measures, thus at least limiting the economic downturn," says Pudschedl, citing the current study conducted by Bank Austria's economists, "Was kann das österreichische Konjunkturpaket?" (How Effective Will the Austrian Economic Stimulus Package Be?). In addition, the loosening of monetary policy by the ECB will start to take effect later in the year.
Private consumption losing steam – no noticeable stimulus for growth in 2010, either
The longer the economic slump lasts, the worse the consequences will be for the Austrian labour market. Unemployment will increase drastically in the coming months, not only in the export-oriented industrial sector, but increasingly in the service sector as well. Bank Austria's economists expect the average number of job seekers to increase by 55,000 to 270,000 in 2009. Employment will fall in Austria for the first time in ten years, causing the unemployment rate to increase by 1.5 per cent to 7.3 per cent within a year. The dramatic deterioration of conditions on the labour market will increasingly impair the development of private consumption, which up until now has been cushioning the blow of the economic downturn coming from outside Austria. Despite the tax relief measures, Bank Austria's economists expect private consumption to stagnate at best in 2009, especially because an increase in the savings ratio can be expected as consumers become more cautious with their money. "Due to the persistently negative international conditions, which show no signs of a reversal, and the lack of consumption caused by the crisis, which will become worse the longer the economic slump continues, we have further reduced our GDP projection for 2009 to -2.2 per cent," says Bruckbauer, adding, "In the current conditions, the chance of a genuine recovery is being pushed back further and further. Therefore, we now expect to see slightly negative real GDP growth of -0.2 per cent in 2010 as well."
charts (PDF; 40 KB)
Enquiries: Bank Austria Economics & Market Analysis
Walter Pudschedl, Tel. +43 (0) 50505 ext. 41957;
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