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Bank Austria Business Indicator:
Recovery more robust but is currently not gaining in dynamics

  • Bank Austria Business Indicator stops upward trend in March
  • Industry sentiment improved, consumers more cautious
  • Pleasant surprise on the labour market: no rise in average unemployment in 2010
  • Rise in March inflation no sign for beginning acceleration of inflation
  • No growth acceleration for the time being, GDP still expected to increase by 1.3 per cent in 2010

The recovery of Austria’s economy continues and is increasingly becoming stable. “The engine of economy, still slightly spluttering, is beginning to run smoothly and in a more stable way. The risk that it suddenly dies again is thus declining. However, the revolutions are not increasing further for the time being. This is the image given by the current Bank Austria Business Indicator, which had dropped to a current value of 1.0 after 1.1 in the previous month”, says Bank Austria chief economist Stefan Bruckbauer. The indicator’s upward trend, which had lasted for almost one year, has now been at least interrupted. The speed of recovery currently is on a moderate level.
However, the industry sentiment is still in an upward trend. All over Europe, the business environment is currently being seen more favourable than a few weeks ago. The European confidence indicator, weighted with Austria’s foreign trade, has recently improved even more considerably since orders developed favourably just in the Austrian main markets, thus leading to more confidence. Given the improved European environment, domestic industrial companies meanwhile are more optimistic about future development, too. Sentiment in Austria, however, is slightly lagging behind the European level.
Consumer confidence, which has improved in a surprisingly strong way in the past few months, is currently not improving after a long period of time. “While the upturn in the industry continues, consumer sentiment has declined slightly due to the tense situation in the labour market and expectations of new fiscal strains. This is a sign which underscores our assumption that consumption and domestic demand will not be able to give a decisive impetus to Austria’s economy in the current year”, Mr Bruckbauer says.

Signs of constant stabilisation in the labour market
According to Bank Austria’s economists, weak domestic demand will actually slow down the speed of current recovery. “Although the sentiment in the corporate sector has improved, investment prospects are restrained given the still insufficient capacity utilization and consumption is suffering from the negative job and income prospects of private households. Nevertheless, it is just private consumption which significantly contributes to a more sustainable recovery with its stable development”, says Bank Austria economist Walter Pudschedl. The strongest economic decline since WW II has had a surprisingly small impact on the Austrian labour market. The commonly delayed strong rise in the unemployment rate has not started yet. Since the record of 7.5 per cent in September 2009, the seasonally adjusted unemployment rate declined to 7 per cent by March and thus is on last year’s level. However, a high number of training participants are on the brink of being reintegrated and since companies’ capacity utilisation has strongly remained below average, the question still is whether many companies will finally have to adjust their job situation considerably. This scenario cannot be ruled out completely, primarily if the global economic upturn proves to be considerably weaker than expected. “In general, signs of constant stabilisation of the labour market are predominant. We thus expect the development this year to be more favourable than seen so far and expect no rise of the  unemployment rate on an annual average in 2010“, Mr Pudschedl says.

No spectre of inflation in the cellar
Although inflation rose relatively significantly to estimated 1.3 per cent in March year-on-year, after only 0.9 per cent in the previous month, Bank Austria economists expect inflation to remain unchanged at 1.2 per cent on an annual average in 2010. The latest increase in inflation reportedly is a result of oil price and exchange rate trends only and can thus not be seen as the beginning of a general period of accelerated price increases as overall economic demand still is too weak and production capacities still are too low. The stable, partially even declining, money supply increase does not allow conclusions regarding a strong increase in inflation in the next few months.

Quo vadis recovery?
The Bank Austria Business Indicator showed a lateral movement only in March after constant increase in the past few months. Positive economic signs have increased in the past few weeks and as a result, the indicator’s current development certainly does not indicate the recovery of the domestic economy might come to an end soon. The question just is whether the upward trend is interrupted temporarily only or whether the speed of recovery has already reached its preliminary peak. “As sentiment on the part of companies has improved further and the labour market is constantly stabilising, we are confident that recovery will continue in a robust way in the next few months. We are of the opinion, however, that the economic development will not be even more vigorous for the time being, particularly as economic recovery is still new and faces a new risk on the supply side due to the most recent increase in the oil price”, Mr Bruckbauer says. Bank Austria economists still expect the GDP to rise by 1.3 per cent in 2010 and by 1.4 per cent in 2011.


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

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