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Bank Austria Business Indicator:
Austria increasingly affected by the global recession

  • Bank Austria Business Indicator continues its downward trend
  • Further deterioration of global conditions
  • Austrian economy will contract by 1.3 per cent in 2009
  • Recession supports marked decline in inflation

At the turn of the year there were still no signs of an end to the negative trend in the Austrian economy. The Bank Austria Business Indicator has fallen from -0.8 in the previous month to a new low of -1.2 points. Industrial sentiment in both Austria and Europe as a whole continues to deteriorate rapidly, but the protracted downturn in consumer confidence is beginning to improve. The sharp decline in inflation and the relatively strong rise in wages, coupled with the tax relief measures announced by the government, are counteracting the negative sentiment of Austrian consumers, something which has slightly cushioned the general decline of the Business Indicator. "The further deterioration of the Bank Austria Business Indicator suggests that the economic low point will probably not be reached before the autumn of 2009. In light of the current economic environment, the slower decline of the Business Indicator should not be interpreted as the beginning of a stabilisation phase“ says Stefan Bruckbauer, Deputy Chief Economist at Bank Austria.

Global recession dampens export prospects
The continued downturn in the expectations of Austria's industrial sector, which is primarily responsible for the Business Indicator's present downward trend, reflects the continued deterioration of the global economy in past weeks. Initially triggered by the US real estate crisis, the recession is meanwhile not limited to the US economy. Europe's industrial countries have not been able to protect themselves from the negative developments; the outlook for Germany, in particular, Austria's most important trading partner, has deteriorated significantly. The growth markets in Eastern Europe, which account for almost 25 per cent of Austrian exports, are now also beginning to falter. The prospects that a stronger focus on more distant markets such as Asia might offset these lacklustre developments are limited since the economic crisis has spilled over to other global regions. "The Austrian economy will be severely challenged by the global recession. Merchandise exports will probably contract in 2009, and demand for exports will have a negative impact on economic growth for the first time in five years“ Bruckbauer maintains.

Sharp downturn in investment activity
The negative trend worldwide is increasingly affecting investments as well as foreign trade. Investment activity is expected to decline sharply in the current year. Besides shelving investment plans, Austrian companies are beginning to respond to the unfavourable international environment by heavily cutting investment spending in line with a strategic reorientation. While the decline in construction investment has been more moderate as a result of public sector promotion measures and support provided to the construction industry through the government's two economic packages, investments in plant and machinery are likely to record negative growth of over 7 per cent in 2009. "Notwithstanding an easing of monetary policy by the European Central Bank, the growing reluctance to invest in the renewal of plant and machinery and especially in the extension of production facilities will result in an over 4 per cent decline in investment activity in real terms in 2009“ states Walter Pudschedl, an economist at Bank Austria.
The increasing negative impact of international economic developments, which primarily dampen demand for exports and investments, have led to a rapid reversal of the situation on the labour market which is reflected in a marked rise in unemployment. "In light of the more difficult economic conditions, we expect the number of employed persons to decline slightly this year, and that the number of those seeking jobs will increase by an average 35,000 compared with the previous year. The unemployment rate will be higher than expected, rising from 5.8 per cent to 6.7 per cent in 2009“ says Pudschedl.

Austrian economy will contract by 1.3 per cent in 2009
The current decline of the business indicator and the most recent economic data suggest that the Austrian economy may have contracted slightly in the final quarter of 2008. As before, the economists at Bank Austria expect GDP growth of 1.8 per cent for 2008 as a whole. In view of the current slowdown of the global economy, the economic downturn in 2009 is likely to be much more severe than previously assumed. In the absence of any signs of a turnaround, the recession will last longer. The Austrian economy will therefore not start to stabilise before the autumn of 2009 at the very earliest. The subsequent recovery is anticipated to be a relatively slow process as the impetus from abroad will probably be rather moderate. GDP growth will consequently also be weak in 2010. Bruckbauer summarises Bank Austria's forecast for Austria's GDP: "I now expect the Austrian economy to contract by as much as 1.3 per cent in the current year. In 2009 we may see a slightly positive trend with growth of 0.7 per cent".
Weak demand and the moderate rise of commodities prices will cause inflation to decline more rapidly this year after averaging 3.2 per cent in 2008. The inflation rate will amount to just under 1 per cent in 2009. Inflation, the major economic issue of 2008, therefore recedes more into the background, enabling the European Central Bank to further lower key interest rates.


Enquiries: Bank Austria Economics & Market Analysis
Walter Pudschedl, tel. 05 05 05 ext. 41957;
 e-mail: walter.pudschedl@unicreditgroup.at


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