Bank Austria economic indicator:
Following good growth over the summer, there are signs of a slowdown, although a "double-dip" recession is not expected
- Bank Austria economic indicator showed the economy to be on the up again in June
- Mood continues to be upbeat in industry, whilst consumer mood fluctuates
- Growth peaked in the 2nd quarter of 2010/2011
- Weaker Euro partially compensates for restrictive impact of the government’s 2011 austerity programme, medium-term growth remains below potential
- Slight decrease in inflation in the second half of 2010
The Austrian economy continues on its bumpy path out of the economic crisis. “Following a slight fall in the previous month, the Bank Austria economic indicator, which has risen once again, demonstrates the volatility of the economic climate with the achievement of a value of 2.3 in June. Notwithstanding the recent rapidly alternating highs and lows of the indicator, the climate continues to be favourable as far as the local economy is concerned”, believes Stefan Bruckbauer, Chief Economist of Bank Austria. However, by now there is increasing evidence to suggest that the summer sun, which is currently rather mild, is beginning to fade.
The mood in industry, which has thus far been showing signs of improvement, is continuing to ensure a good outlook. “June saw confidence levels at local production plants soar to heights not seen since the beginning of 2008, meaning that it is currently even somewhat more favourable than the outlook in Europe as a whole. The rise in global demand, particularly from Asia, is continuing to gradually boost the mood in European industry, which is being positively reflected in Austria”, says Bruckbauer. In addition, the mood weighted by Austria’s share of foreign trade is significantly above that of the non-weighted European average. Austria has the advantage of enjoying stronger economic ties with those European Union countries which are currently deriving more benefit from the global economic recovery. These include, above all, Germany. Meanwhile, a somewhat more favourable wind is also blowing once again from the East, which is having a positive impact on industry confidence in Austria. “Whilst there has been a continuous rise in confidence in local industry for many months, there is growing uncertainty among local consumers. Although the current increase was the major driving force behind the upswing of the Bank Austria economic indicator in June, discussions surrounding the austerity programme, public debt and the relatively cautious outlook for the labour market have recently resulted in strong fluctuations in the mood of local consumers”, says Bruckbauer.
The various elements of uncertainty promise to impose an increasing burden on the mood of local consumers over the coming months, which, according to economists at Bank Austria, will be reflected in the medium term in highly cautious consumption, along with a tendency towards saving. This is accompanied by the fact that the impetus provided by the economic support measures is slowly fading and uncertainty on the capital markets regarding the viability of the increased public debt is set to have a negative influence. This will be felt by industry which is heavily dependent on exports, which will soon only be able to make lower gains than they have made over the past few months. “With an estimated rise in GDP of at least 0.7 percent compared to the previous quarter, the second quarter of 2010 has already marked the growth peak of the current year, as well as in the year to come”, states Bank Austria Economist Walter Pudschedl.
Inflation lies below the 2 percent mark
The change in inflation is being increasingly sidelined in Austria. The increase in inflation in the spring brought about by the rise in oil prices, quickly stabilised, even resulting in a slight decrease in May compared to the previous year. In June too, inflation once again lay below the 2 percent mark, which economists at Bank Austria believe was thanks to the falling price of crude oil. “There is set to be a downward trend in inflation during the second half of the year due to the reduced pressure exerted by raw material prices and a lack of demand. We have slightly reduced our forecast for the 2010 annual average to 1.7 percent,” says Pudschedl. Inflation expectations for 2011 have also been reduced to an annual average of 1.7 percent.
Weak growth, yet…
Even if the speed of the economic recovery slows down in the second half of 2010, the Austrian economy will still continue to grow. “Fears of a double-dip recession as a result of public budget cuts are exaggerated as far as we are concerned. The Austrian budget has even expanded over the course of the current year and the planned consolidation measures, amounting to less than one percentage point of GDP in 2011, will be feasible if good quality measures are organised in a sensible manner. All the more so since the devaluation of the Euro is likely to compensate entirely for the restrictive impact of the spending cuts”, Bruckbauer is convinced. For this reason, the economists at Bank Austria stand by their GDP forecasts, despite increased uncertainty due to the escalation of the debt crisis on the outskirts of the EU, which has been taking place for over six months now, and continue to anticipate economic growth of at least 1.3 percent in 2010 and around 1.4 percent in 2011 if increasing risks begin to reduce.
For further inquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel. +43 (0) 50505 - 41957;