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15.11.2010

Bank Austria Business Indicator:
Economic growth in 2011 expected to be slightly above 2010 at two per cent

  • Bank Austria Business Indicator continues ascent in November
  • High spirits in industrial sector and among consumers
  • High-paced recovery to continue in the final quarter – GDP increase of 1.9 per cent expected in 2010
  • Despite positive signals from exports and consumption, investments continue to suffer from medium-term anxiety about the future

"The Bank Austria Business Indicator increased to 4.2 points in November, the highest for over three years", said Stefan Bruckbauer, chief economist at Bank Austria. The domestic economy is in high spirits. Optimism among Austrian consumers has continued to increase and the industrial sector considers business prospects to be better than in the previous month. The sentiment among domestic consumers and the industrial sector is as good as it has been for three years. “While the continuing easing of the labour market is fuelling consumer confidence, the favourable assessment of the domestic industrial sector is underpinned by further improved parameters from Europe. For the first time, a supportive tailwind was blowing towards Austria in October, not only from all the Western European markets but also from some Eastern European countries that are particularly closely linked to it economically, such as the Czech Republic and Slovakia”, continued Bruckbauer.

In a delayed reaction to the international parameters, the domestic economy is experiencing buoyancy, while the pace of recovery globally has already begun to slow down. "The strong recovery of the domestic market that started at terrific speed in spring 2010 is not running out of steam yet. After the strong rise in GDP in the third quarter of 2010 – 0.9 per cent in quarter-on-quarter terms – a significant increase can also be expected in the final quarter", said Bank Austria economist Walter Pudschedl. The positive sentiment in the industrial sector, new business, the growth of which has hardly slowed down, and filling order books indicate that Austria’s export economy should gain momentum in the coming months. Due to capacity bottlenecks that have already begun to appear, long-postponed investments in equipment are expected to pick up slowly. In addition, the measures announced to consolidate the budget will hardly have any effect on the development of private consumption as the upward trend on the labour market is continuing. “Even if the level of growth has now peaked, the domestic economy will be able to keep up a high pace in the fourth quarter of 2010 on the coattails of the German economy at around 0.6 per cent in quarter-on-quarter terms. We are still expecting GDP growth of 1.9 per cent for the whole of 2010”, said Pudschedl.

The slowdown in the global economic recovery, which was apparent in the early indicators in mid-2010, will also begin to be reflected in Austria. This is due to not only the inventory cycle and the support programmes that are coming to an end, but above all the pressure to restructure out-of-control public finances – resulting in counter-cyclical savings programmes. This will adversely affect demand for Austrian exports in 2011 and growth in exports will decline significantly compared with 2010, especially since no assistance can be expected with regard to the exchange rate. In addition, the more restrictive budget policy in Austria itself will affect the development of domestic demand, in particular private consumption in 2011. The chances of a noticeable revival in investment activity are small in view of the restraint being shown by the public sector, even if a moderate increase in capacity at least can be expected from the private sector. This means that, overall, economic development in 2011 will be more balanced than in the current year, which is characterised primarily by the recovery in exports. “With its great staying power, the strong German economy can delay the braking effects of the world economy longer than we have assumed to date and is better placed to alleviate them. For the Austrian economy, this means a considerable increase in GDP can be expected at the start of 2011. We have therefore raised our expectations for growth for the whole of 2011 to 2.0 per cent”, said Bruckbauer. Thus the rise in GDP in 2011 will even end up being slightly higher than in 2010. “After two years of growth rates around the two per cent mark, the Austrian economic performance is expected to be just under the pre-crisis level by the end of 2011. The sharp economic slump of 2009 will thus be overcome more rapidly than originally expected”, said Bruckbauer.
Despite this dynamic recovery, however, the imbalances affecting current accounts and government budgets are having a negative effect on potential growth in the medium term, something which is also apparent in the very cautious investment drive: Bank Austria economists are not expecting growth rates over 2 per cent after 2011.


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

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