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Bank Austria Business Indicator:
Recovery proceeding more quickly, risk of disappointment increasing

  • Recovery will continue in 2010
  • Pace will decrease, however; few major driving factors
  • Corporate loans considerably more stable than in past recessions
  • Risks from early exit from expansive economic policy

The recovery of the Austrian economy is continuing. The Bank Austria Business Indicator left negative territory for the first time in 13 months in November and rose to 0 (October minus 0.4). "The broad-based improvements in sentiment have pulled our business indicator out of the red," explained Helmut Bernkopf, Bank Austria director for Corporate and Investment Banking, whereby he stressed that Austria's most important trading partners, above all Germany and Italy, have been enjoying consistent economic recoveries.
This change can be attributed to the global economic recovery combined with the effects of the various economic stimulus measures that were enacted during the past two years. After a very good third quarter, Bank Austria also expects positive growth of roughly 0.5 per cent in the fourth quarter. The somewhat more robust economic recovery in the second half of the year will also cause a somewhat higher level of annual growth in 2010 because the Austrian economy is starting from a slightly higher level. "The strong recovery that we are now seeing makes us more optimistic for 2010, and we are now expecting economic growth of 1.3 per cent for next year," said Bernkopf, "At 1.3 per cent, Austria's economy will remain well below its potential in 2010, however, and we are likely to already have seen the highest rate of quarterly growth in this recovery in the third quarter of this year."

The global economic scenario on which Bank Austria's projections are based currently sees moderate improvement of about 1 per cent in the Eurozone, while the USA is expected to grow by just under 2 per cent. According to Bank Austria, the global economy will grow by just under 3 per cent in 2010, after 2009 brought a decline of 1.1 per cent, the first since 1945. As far as interest rates are concerned, the ECB is expected to leave its rates low for the time being and to make its first hike at around the end of 2010 or the beginning of 2011.

2010: slight recovery for machine building, construction and automotive industries to remain weak
The capital goods industries were hit especially hard by the downturn in 2009. Bank Austria's economists project that production declined by an average of 27 per cent in the steel industry, 21 per cent in the automotive industry and nearly 20 per cent in the metal goods and machinery industries this year. The electrical and electronics industry proved to be relatively robust and only saw a 10 per cent decline in output; the food industry stagnated. For 2010, economists at Bank Austria are only expecting to see a noticeable recovery in the machine building industry, though production here will remain below the levels achieved in 2008 for the foreseeable future. The construction industry will contract again in 2010, but Austria's builders were hit by a decline of "only" roughly 5 per cent in real terms in 2009 thanks to the government stimulus measures.

Stable corporate lending trend, much better than in past recessions
Despite the fact that we saw the strongest economic decline in Austria's post-war history, the volume of corporate loans remained very stable in Austria and even increased by over 3 per cent since the outbreak of the crisis, though this growth has slowed somewhat in the past months because of weak investment activity, increased debt repayment and the recent considerable resurgence in bond issuance. Nevertheless, new corporate lending currently totals only about EUR 9.5 billion per month, roughly the same as in 2008 (EUR 10.1 billion) and considerably higher than in 2007 (EUR 7.8 billion). "The supply of corporate loans was considerably better than could have been expected in Austria in light of the severity of the recession," said Bernkopf, "We are expecting new lending to remain stable at about EUR 10 billion per month next year, and that outstanding corporate loans will increase by about 2 per cent."

Austria's economy maintains share of world market despite downturn
"In spite of the roughly 20 per cent decline in exports in 2009, Austria's economy has lost no significant market shares to date," said Stefan Bruckbauer, chief economist at Bank Austria. Austria's world market share of exports has only fallen from 1.08 per cent in the first half of 2008 to 1.06 per cent in the first half of 2009 as a result of the crisis. Germany lost considerable shares, and even fell slightly behind the USA within a year. In addition to the USA, Asia and especially China gained global market share during the crisis.

Economists at Bank Austria are expecting exports to boost the economy again in 2010, but only to a limited extent as is the case for many other driving factors. "As we are not expecting to return to a world of enormous current account deficits, surplus countries like Austria cannot expect that their recoveries will be driven entirely by exports over the medium term," noted Bruckbauer. But the potential from other economic factors is limited as well. The continuing high level of excess capacity, the upcoming public budget reforms and the further increases in the propensity to save brought about by the crisis mean that we will see no major positive economic impetuses in the near future. Nevertheless, Bank Austria's economists expect the upswing to continue in 2010, but at a slow pace of less than 0.5 per cent growth per quarter.

Risks for the upswing: too quick an exit from the expansive economic policy
Bank Austria sees risks for the development of the economy especially when the governments abandon their stimulus measures too soon. As far as we can tell today, fiscal policy will remain expansive in 2010 and monetary policy at least neutral, but dampening effects are unavoidable after that. "The negative effects of the reduction of stimulus measures will be just as significant as the positive effects of these measures during the crisis," said Bruckbauer. According to Bank Austria calculations, a 3 per cent interest rate hike costs roughly 1 percentage point of growth. Public budgets cannot return to their pre-crisis balances without a strong, self-sustaining upswing. Such an upswing is not yet in sight and will only come very slowly. A reduction of the budget by 1 per cent of GDP by means of economic policy measures usually retards growth by more than 1 per cent. "We don't think that the strong euro has had much of a negative impact on the economy up until now. The real external value of the euro for Austria's exporters is barely higher than in recent years now," reported Bruckbauer. However, if the euro were to climb to 1.75 against the US dollar, that would cost Austria's economy around 1 percentage point of growth.

 charts (PDF; 128 KB)

Enquiries: Bank Austria Economics & Market Analysis Austria
 Walter Pudschedl, Tel. 05 05 05 ext. 41957;
 E-mail: Walter.Pudschedl@unicreditgroup.at

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