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15.07.2009

Bank Austria Business Indicator:
Economic downturn bottoms out

  • Bank Austria Business Indicator rises further in July, but still in the red
  • Export situation deteriorates for first time in six months
  • Private consumption holds its own for the time being, impact of high unemployment increasingly felt
  • Slow recovery – GDP expected to decline further by around 3.5 per cent in 2009, decline of 0.3 per cent in 2010

The economic situation in Austria is continuing to bottom out. "In June the Bank Austria Business Indicator rose to minus 1.7 points, thus achieving the most significant monthly upward movement for more than 15 years. Only at the end of the 1993 recession was the rise slightly greater", says Bank Austria deputy chief economist Stefan Bruckbauer. It is not just the strength of the current trend that is spreading cautious optimism, but also that all the Indicator's sub-components are pointing upwards. The improvement in the mood of Austrian consumers has been especially marked. Following the dramatic tumble in winter, with the help of the tax reform it has now levelled off where it was last autumn, when the economic crisis broke. The general international conditions for the Austrian economy are also beginning to show a steady improvement. European industry is looking to the future with greater confidence. Industrial confidence has improved, especially in the countries that represent the main markets for Austrian exports, primarily Germany, but also Italy and France. The mood of goods manufacturers in some Eastern European neighbours, such as Slovenia and Slovakia, has also improved again. Although the trend in Austrian business expectations may lag somewhat behind that in other European countries, it is still showing an improvement for the third month in succession. "Bank Austria's Business Indicator has now recovered from its historic low in Q1 2009, and is continuing to show a strong, steady rise. Although Austrian industry has yet to see the bottom of the recession, the economic decline has in the meantime slowed considerably", according to Bruckbauer.

Impending change in foreign demand
The improved mood in industry is based on the first, tangible figures. Bank Austria economist Walter Pudschedl sees the first ray of light in the economic gloom, saying "The latest seasonally adjusted export figures for April have moved upwards for the first time in more than six months. Foreign demand is slowly beginning to recover after a month-on-month drop in export volumes since last September, falling to the level at the start of 2005." The Asian area is in the process of pitching itself as the economic engine pulling the global train. At least the trend in Austrian exports to India, China and Korea is relatively favourable. Although the turnaround in foreign trade is yet to be confirmed in the coming months, the latest data has, however, significantly increased expectations that the economic situation will stabilise and bottom out in the second half of the year.

A sustained improvement in the export situation is crucial to the economy's progress, because the longer the crisis lasts, the greater the risk that private consumption will no longer be able to act as a stabilising factor as before. Despite the all-time low in consumer confidence, private consumption, or the retail trade, as an indicator, has long proved to be a rock in the economic stream. The first signs of weakness appeared in May, though, when seasonally adjusted retail figures fell for the first time this year. The tailwind created by the tax reform and eco premium for new vehicles is weakening or has petered out altogether. The deterioration in the labour market situation is weighing increasingly heavily on private consumption. "We expect an average increase in the number of unemployed by a good 60,000 in 2009 and another 40,000 in 2010. The rate of unemployment will thus rise to 7.6 per cent in 2009 and 9 per cent next year" in Pudschedl's opinion. In view of these general conditions private consumption will even decline in 2009, especially as a rise in the rate of savings will be expected as a precaution.

The low rate of inflation will temporarily support the real income situation. On average consumer prices will continue to stagnate in the next few months, or will even fall slightly compared year on year. "For the time being low inflation is positive for the economy and not a sign of deflation. In the medium term there will continue to be a risk of deflation in Europe, however, which would then have a fatal impact on the economy", according to Bruckbauer.

Recession only slowly coming to an end
In the opinion of Bank Austria's economists, the recession in the Austrian economy will last for a few more months. A rapid, strong recovery is unlikely against the tense background of the first favourable figures from exports and consumption increasingly weakened by falling employment and a restrained real income trend. "Because the upward trend of the last two months in the Bank Austria Business Indicator has already been reflected in hard economic data, we expect that following the economy's marked 2.6 per cent slump at the start of the year, the second quarter decline in GDP will only have amounted to 0.5 per cent on the previous quarter", stresses Bruckbauer, adding "Only after the turn of the year will international demand be sufficient to return the Austrian economy to – albeit slow – growth." As the latest data confirms the economic picture to date, Bank Austria economists are still assuming that GDP will shrink by 3.5 per cent in 2009 and 0.3 per cent next year.

 tables (PDF; 30 KB)

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

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