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15.01.2010

Bank Austria Business Indicator:
Ringing in the new year with mixed recovery signals

  • Bank Austria Business Indicator back in the black after 14 months
  • Economy will lose momentum in the spring, but the recovery will continue
  • Moderate GDP growth expected: 1.3 per cent in 2010 and 1.4 per cent in 2011
  • Prices will only climb moderately, with manageable inflation risks

Austria has seen further improvements in economic conditions since the beginning of the new year. "Thanks to the continuing upswing in sentiment in industry and among consumers, the Bank Austria Business Indicator closed the year at a value of 0.2. Following a constant upward trend since April 2009, the Indicator has now entered positive territory for the first time in 14 months," explained Stefan Bruckbauer, chief economist at Bank Austria. "The economy is getting warmed up, and things have started to gather speed again in Austria."

Overall, confidence among Austrian consumers has improved immensely. Following the dramatic slump during the crisis, consumer confidence is now almost back to its long-term average. The signs of stabilisation seen on the labour market in recent weeks have led consumers to view economic conditions in a more favourable light. Consumers are currently paying little heed to the slow rise of inflation and the resulting poor salary prospects for 2010. Austrian industry sentiment continues to climb from its low last spring, though most recently at a slower rate, thanks to the support of the sustained upswing in international industry. Sentiment is on the rise in nearly all the Eurozone countries.

Quickening international demand, especially in Asia, is making an impact. "Besides the improvement in sentiment that has been observed for some time among our main trade partners, Germany and Italy, the improvement in Central and Eastern Europe is now having an increasingly positive effect on Austria," said Helmut Bernkopf, Bank Austria’s director for Corporates and Investment Banking. "Economic conditions are improving across the board at the moment. The pessimistic attitude that has dominated among consumers as well as in national and international industry for a long time is dwindling. This underpins our belief that the economy will not start to sputter again in the coming months," added Bruckbauer.

Tentative economic growth
Based on the present data, the economists at Bank Austria believe that the relatively high speed that the recovery started with in autumn was maintained in the final quarter of 2009. "We estimate economic growth of 0.5 per cent in the fourth quarter compared to the previous quarter. However, we don’t see enough enough fuel to maintain the current pace of the recovery beyond spring 2010," said Walter Pudschedl, an economist at Bank Austria. Exports will lose some of their momentum as a driving force once the worldwide governmental stimulus packages expire. The latest decline in incoming orders for European and Austrian industry is the first indication of this, and there are no signs of new growth drivers on the horizon.

The low level of capacity utilisation among companies and a generally more cautious risk assessment on all fronts will have a negative impact on investment activity in the coming months.  "Overcapacity and the uncertainty that is still present regarding future economic development are also taking their toll on the demand for credit. The volume of corporate loans has been stagnating for months, while company deposits are increasing slightly," said Helmut Bernkopf, Bank Austria’s director for Corporates and Investment Banking. Reluctance on the part of investors will therefore improve only slightly over the course of 2010. Added to this is the persistently difficult situation on the labour market, which will see another increase in the unemployment rate and a decline in employment this year. This will put a damper on private consumption for quite some time to come. Private consumption will therefore provide only limited support for the Austrian economy in 2010. "Following the 3.8 per cent decline in GDP last year, we expect moderate economic growth of 1.3 per cent in 2010, which will then increase slightly to 1.4 per cent in the following year," said Pudschedl, expecting a slow but solid recovery process.

Inflation to increase somewhat
The increase in inflation in December 2009 to 1 per cent in comparison to the prior year is another result of the end and now the reversal of the effect that energy prices had on keeping inflation down last year. The latest upward trend in price levels will continue into the beginning of 2010, with the decisive factor remaining the development of petroleum prices. We also anticipate that the price of petroleum will rise to levels above those from last year in the coming months. This means that we can expect another slight increase in inflation but at a slower pace, resulting in levels of between 1.1 and 1.5 per cent in comparison to the previous year.
Assuming that the increase in oil prices will be relatively mild, we also anticipate moderate inflation levels for 2010 as a whole. "We expect an average of 1.2 per cent inflation in 2010, but most likely with upside risk," said Bruckbauer. "There is only a slight risk of unsettlingly high inflation rates or even hyperinflation, since only mild inflationary pressure can be expected from the demand side as a result of limited economic prospects, continued pressure on the labour market and rather restrained wage increases." Energy prices will play a stronger role in driving inflation in 2011 as a result of an expected increase in the average price of oil to more than USD 100 per barrel (compared to USD 85 in 2010). In addition, the more favourable economic prospects and the reversal of the labour market trend starting at the end of 2010 should exert more pressure on prices. However, at an average of 2 per cent, inflation will be no cause for alarm in Austria in 2011.

 tables (PDF; 71 KB)

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

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