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Bank Austria Business Indicator:
Stable recovery, but growth close to stagnation in 2010

  • Bank Austria Business Indicator continued to improve at beginning of the year
  • Labour market situation better than expected, but still affecting consumer demand
  • Economic stimulus programmes are losing effect
  • Private investments remain weak, decline expected also in 2010
  • Recovery further losing momentum in spring, weak growth expected in 2010 and 2011

“The recovery of the Austrian economy is becoming more stable, but progress is moderate,” according to Bank Austria’s chief economist, Stefan Bruckbauer. The general conditions improved slightly at the turn of the year. The economic upswing seems to be getting more stable in Austria. The current Bank Austria Business Indicator confirms these developments. “All components of the Bank Austria Business Indicator are showing an upward trend at the beginning of the year. The Indicator has been climbing for nine months in a row and, at a level of 0.5, clearly represents growth,” Mr Bruckbauer says.

It was mainly the improved sentiment of the industry which contributed to this development. An increase in incoming orders has been recorded for months, the amount of existing orders is increasing and utilisation is rising. These are the developments which help to increase the confidence of European enterprises after the sharp decline in the first half of 2009. Following the improved international situation, the domestic industry is expecting better sales opportunities for its products as well. “Both on a European level and in domestic material goods production, sentiment is showing an upward trend. The improvement of business expectations even accelerated slightly at the beginning of the year. However, sentiment of domestic consumers is improving more and more slowly,” Mr Bruckbauer says.

Labour market affects expectations for consumer demand
The moderate development of consumer confidence leads to the conclusion that private consumption will not be able to support the economic development to the same extent in the following months, particularly as general conditions are deteriorating. Households are facing a low, but still growing inflation. Following an average of 0.5 per cent in 2009, the economists of Bank Austria expect inflation to amount to 1.2 per cent in 2010. However, it is primarily the labour market situation which proves to be an increasing burden for private consumption. While the labour market situation is better than was to be expected against the background of the severe crisis, the employment rate in Austria is more than 1 per cent lower than in 2008 and the unemployment rate is considerably higher. Furthermore, the recent stabilisation on the labour market should be observed cautiously. On the one hand, the expiration of short-time work is expected to lead to increasing lay-offs in some enterprises soon. On the other hand, the unemployment rate including people in training is still increasing. “While employment will only decline slightly this year according to our estimates, the unemployment rate is expected to increase from 7.2 per cent in the previous year to an average of 7.8 per cent in 2010. Only next year a slight decline of unemployment is considered to be possible,” according to Bank Austria economist Walter Pudschedl.

The currently increasing confidence of the industry is mainly caused by export demand, which has been rising for some months. The global recovery of demand is based on the economic stimulus programmes implemented by governments worldwide. These programmes have also driven the upswing of Austrian material goods production. Against the background of tight budgets and public debt, which has increased considerably, these positive effects will taper off soon. However, there are no factors for a self-sustaining upswing. Expectations are particularly moderate with regard to the development of investment activities of enterprises due to low utilisation, increased debt ratios and adapted risk assessment. “While private investment activities are not gaining enough momentum, the positive effects of public economic stimulus programmes are disappearing slowly. As long as the labour market situation does not improve in a sustainable way, consumption will not be able to fill this gap. Therefore, there is a risk of the current economic recovery running out of breath,” Mr Pudschedl says.

According to estimates of Bank Austria’s economists, the weaker GDP growth rate of 0.4 per cent from the previous quarter in the last quarter of 2009, as compared to 0.5 per cent in autumn, was a first sign that, in the medium term, the economic recovery would not maintain the same speed it had at the beginning of the recovery in the middle of 2009. Demand from abroad will provide domestic businesses with a stimulus for a continued economic upswing until summer, supported by a favourable US dollar exchange rate in the short term. However, this impetus will become weaker and lead to a weaker recovery. Until the middle of 2010, growth rates will be lower than in the second half-year of 2009. Only from the middle of the year, conditions for private consumption supporting the economy will improve. This development will affect the savings rate and will be based on a final stabilisation of the labour market. However, there are no signs that consumption will increase considerably or that investment activities will rise noticeably. Expectations for building investments are particularly unfavourable. On the whole, investments will decline by 1 per cent in 2010. Even though 2010 will not provide a strong stimulus for the domestic economy, slight recovery will be recorded nevertheless. “Following a decline in the GDP of 3.6 per cent last year, we do expect a slight increase of 1.3 per cent in 2010. Taking into consideration the productivity development to be expected, Austria will only see economic growth close to stagnation in 2010,” Mr Bruckbauer says. The general conditions do not provide hints that a noticeable economic upswing can be expected for next year, either. With 1.4 per cent, growth of the GDP will not be much higher in 2011 than this year.

 charts (PDF; 73 KB)

Enquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel. 05 05 05 - 41957;
E-Mail: Walter.Pudschedl@unicreditgroup.at

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