Bank Austria Business Indicator:
Significant growth spurt on the cards in Q2
- Bank Austria Business Indicator rises strongly in April to 2-year high
- Industry sentiment continues to improve, consumer confidence up sharply
- Outstanding growth prospects in the short term, moderate expectations with higher risks in the medium term
- Bank Austria GDP forecast for 2010 remains unchanged at +1.3 percent
In April the Bank Austria Business Indicator rose strongly from 1.0 in the previous month to 2.2. This is its highest reading for two years. "After a short break to get its breath back the Bank Austria Business Indicator is again posting solid gains, underlining the fact that despite the lean GDP figures for the first quarter the recovery of the Austrian economy has not shuddered to a halt", said Bank Austria chief economist Stefan Bruckbauer. The good leading indicators and the encouraging improvement in the economic climate suggest that the GDP stagnation recorded for the first three months did not do the recovery in the Austrian economy justice.
In fact, the recovery of the Austrian economy has been progressing fundamentally well since the end of the global financial crisis. This is strongly reflected in the confidence of market participants which rose in the first quarter. In April the economic climate brightened up some more, and the surprisingly robust improvement in the sentiment of Austrian consumers contributed the most in this respect. "Austrian consumers are now looking far more optimistically into the future than most other consumers around Europe. Thanks to the tangible stability on the labour market, people are now more upbeat about their own financial position in the short and medium term", explained Bruckbauer. Industry sentiment has also continued to improve in Austria. However, in the wake of European industry, which has its tail up again thanks to the energetic global growth trends, the sentiment in the export-driven industry has turned out better in recent months than otherwise suggested by the production figures for the early months of the year.
Helmut Bernkopf, Bank Austria director for Corporate & Investment Banking, is convinced that "the improved order flow will lend significant momentum to the growth of Austrian industry in the second quarter, with a slight lag". This means the demand from abroad could be extremely beneficial for overall economic development during this time. In addition to exports, consumption that has already been a stable component of the ongoing recovery will continue its solid upward trend. "The growth prospects for the Austrian economy are great in the short term. The recovery of the local economy will then also be evident in the key figures for the second quarter. We expect a robust increase in GDP by around 0.7 percent compared to the previous quarter", revealed Bank Austria economist Walter Pudschedl.
"Beyond the second quarter of 2010 the economic prospects are less rosy, but not adverse by any manner of means. In the second half of the year the growth trend of the Austrian economy will continue at a moderate pace", said Pudschedl. The economic climate is being influenced by the tapering off of the global stimulus programmes, which is tending to weigh down on exports. Nonetheless, the weakening of the euro in recent weeks following discussions about the solvency of Greece has already contributed to improving the price competitiveness of European products on the global market, which should go some way to limiting the negative implications. The matter of reducing budget deficits which soared during the crisis is now increasingly coming under the spotlight. Domestic demand will suffer as a result, but the persistently low level of interest will ensure a rather auspicious investment climate. "Following the recent decisions made by the European Central Bank we assume that the monetary policy belt is not likely to be tightened too quickly. The extremely low interest rate at present will remain well into the coming year, providing some support to economic activity", explained Stefan Bruckbauer.
The robust increase in the Bank Austria Business Indicator in April sends a clear signal that after the topsy-turvy start to the year the Austrian economy will probably reflect strong growth towards the middle of the year. Even if the pace of this growth loses some momentum in the second half of the year, the recovery will continue. "We uphold our GDP forecast of 1.3 percent in 2010. For 2011 we still predict economic growth of 1.4 percent, though the downside risks have risen on account of developments in the European economy", explained Bruckbauer. A brisker tempo in reducing budget deficits beckons. This will subdue the growth prospects for the entire euro area for some time in what is still a rather restrained upswing. "In the coming years Europe will fall behind the USA in terms of its growth trends", said Bank Austria chief economist Bruckbauer in conclusion.
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Enquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel. +43 (0) 50505 - 41957;