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Considerable differences in impact of economic crisis on Federal provinces

  • Industrial strongholds Upper Austria, Vorarlberg and Styria worst affected
  • Service centre Vienna has advantage
  • No region of Austria can totally escape the international recession, 2009 output in decline everywhere

Austria has finally been hit by the global economic recession. The extent to which it is affected, however, varies greatly from one province to the next. "The extent to which the individual provinces are feeling the impact of the international economic crisis depends on their respective structural make-ups", says Bank Austria's deputy chief economist Stefan Bruckbauer.

Industrial heavyweights suffering
The marked economic collapse of recent months can predominantly be ascribed to a massive, global decline in demand for capital goods. Falling foreign demand has resulted in a noticeable reduction in exports of Austrian goods. Since domestic industry is responsible for a good 70% of exports, the provinces whose economies are heavily geared to this sector are suffering most from the collapse. "The provinces that have a significant concentration of industrial sectors more seriously affected by the crisis than most, such as the motor industry, mechanical engineering and steel, as well as production of metal goods, are facing especially big challenges in the current climate", according to Bruckbauer. "It is mainly Upper Austria, Styria and Vorarlberg that are suffering as a result of the relatively major importance of these export-orientated material goods sectors." Salzburg, and Vienna in particular, are much better positioned in this regard.
Stronger construction sector an advantage
Thanks to numerous government measures to prop up the economy, the construction sector will hold up relatively well in the next few months. In real terms construction output will fall by a good 3% in 2009 and by another 1% in 2010. Civil engineering is in a much better position, because it had the advantage of preferential investment from ÖBB and ASFINAG. The demand for new commercial buildings and apartments is, on the other hand, showing a marked decline. Bank Austria economist Walter Pudschedl expects that "Whilst Burgenland's construction industry, which is relatively speaking the strongest in Austria, focuses on structural engineering, Lower Austria, Carinthia and Upper Austria too will profit from the more favourable trend in civil engineering, because their construction sectors are especially heavily geared to this sector".

Service centres more stable
On average the service sector has been least affected by the economic downturn. In view of its high proportion of overall output (more than two thirds) the tertiary sector, in which up to 70% of Austria's employees work, is a very important stabilising factor during the current economic recession. In Pudschedl's opinion, "The provinces with above-average orientation towards service industries, especially those centred on the public sector, health and education, have a good chance of developing more favourably in the coming months. This mainly includes Vienna, with a service industry share of output that exceeds 80%."
The trend in the retail trade will also be better than that in the economy as a whole with support from the latest tax reform. Salzburg and Tyrol are also in a better position, to a certain extent, along with the entire eastern region. Some tertiary sectors, however, will also react disproportionately to the international economic weakness. These include some key economic services, such as the transport business and tourism, which are unlikely to be able to make up for the decline in demand from big-spending, longer-distance foreign tourists with domestic customers. This limits the prospects for tourism hotspots Tyrol, where tourism has a more than 12% share of the entire region's output, Salzburg (9%), as well as Carinthia and Vorarlberg (each just over 6%). Tyrol and Salzburg are also affected by the relatively major importance of the transport business, which is suffering especially badly from the decline in cross-border demand.

Eastern region has better hand
In an economic environment characterised by globally weak demand, in view of the development pattern for the individual sectors, a glance at the structural breakdown of the individual provinces' economies is a decisive indication of the extent to which each region will be affected by the recession. Furthermore, the recession's initial impact can already be clearly seen and confirms the above assumptions. Based on seasonally adjusted figures, the employment trend in Austria has been in continual decline since mid-2007. Whilst Vienna's change in the employment market set in at the start of this year, in the more industrialised Federal provinces the decline started much earlier. Employment reacted very early on in Styria in particular, namely at the start of 2008, to the deteriorating economic situation.
Whilst Bank Austria economists anticipate that the Austrian economy as a whole will suffer a 3.5% decline in real terms in 2009, due to the structural conditions and on the basis of data available to date, Upper Austria, Vorarlberg and Styria can expect an above-average decline that will exceed this figure by a good margin. The economic trend in Tyrol, Lower Austria and Salzburg will be around the Austrian average. Vienna, on the other hand, and to a certain extent Burgenland and Carinthia will, with some noticeable exceptions, have the chance to weather the current economic crisis better. "We expect a decline in economic output compared with the previous year in all Federal provinces in 2009. No region of Austria will be able to completely escape the negative, global conditions due to existing, major international integration", is Bruckbauer's concluding thought on prospects for the regional economies during the current economic crisis.

 chart (PDF; 23 KB)

Comment: A detailed examination of the extent to which the individual provinces are affected by the international economic recession can be found in Bank Austria's new "Xplicit Österreich: Wie die österreichischen Bundesländer durch die Konjunkturflaute steuern werden" publication. This publication can be downloaded free of charge  here (German version).

Enquiries: Bank Austria Economics & Market Analysis
 Walter Pudschedl, Tel. +43 (0) 50505 - 41957
 E-mail: walter.pudschedl@unicreditgroup.at

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