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Bank Austria Business Indicator:
Recovery to remain strong until the end of 2010, but momentum is slowing

  • Bank Austria Business Indicator rises to its highest value since February 2008
  • Consumer confidence soaring, industrial sentiment still positive
  • Exports and investments to provide considerable stimulus until the end of the year
  • Weaker global economy and reduction of the budget deficit to put a damper on growth in 2011, but the risk of recession has diminished

The strong recovery of the Austrian economy is continuing. "The Bank Austria Business Indicator increased once again in August, hitting a value of 3.3, the highest level seen in two and half years," said Stefan Bruckbauer, chief economist at Bank Austria. "The rebound of the global economy has reached Austria. In addition, it appears that we can still look forward to several more strong months following the particularly upbeat second quarter of 2010."

"The rise in the Bank Austria Business Indicator in August can mainly be attributed to the high spirits among Austrian consumers. The persistently positive trends on the labour market have led to a considerable countermove to the gloom and doom that gripped consumers last year, and Germany is the only other country in Europe where the consumers are comparably optimistic," said Bruckbauer. However, we still have to assume that the improvement in sentiment among Austrian consumers will not be reflected to the same extent in the actual development of private consumption and that the current estimates regarding its influence on the Austrian economy are therefore somewhat exaggerated. "Along with the growing optimism among consumers, the continued positive sentiment in the industrial sector also suggests that the positive economic situation will continue into the winter despite signs that the pace of the recovery will slow," said Bruckbauer. The trade-weighted value for European industrial sentiment only improved marginally in August, and industrial sentiment in Austria now points to increasing uncertainty in the sector.

Therefore, Bank Austria's economists believe that the high pace of the recovery in the Austrian economy seen in the spring has not carried over into the third quarter. "In the third quarter, we expect GDP growth to still be strong, but not quite as impressive as in the previous period, with an increase of roughly 0.6 per cent in quarter-on-quarter terms," said Bank Austria economist Walter Pudschedl. The export-oriented industrial sector was once again the main driver of economic growth in Austria this summer. The positive development of new business on the back of strong foreign demand likely pushed export growth into double-digit territory. Following a significant increase in capacity utilisation for the domestic economy in the previous months, investments also made a considerable contribution to growth over the summer.

"The Austrian economy will lose some of its momentum towards the end of 2010," said Pudschedl. The downturn in the global economy, the decreasing stimulus for the inventory cycle and the reduction of the budget deficit will put the brakes on the pace of the recovery, and this will be reflected in all of the demand components, but particularly in exports and, eventually, investment activity. However, the significant increase in the order backlog for Austrian industrial companies over the course of the year and the upward trend in private consumption, which will at the very least remain stable, suggest that the recovery will not come to an abrupt stop even after that time frame. "We expect the Austrian economy to continue expanding moderately and to pass through the weakest growth phase around the middle of 2011 and then gradually pick up steam again," said Bruckbauer.

The current development of the Bank Austria Business Indicator suggests that the Austrian economy will be able to maintain a high pace of recovery for longer than was previously assumed. Following the particularly strong second quarter, economic activity remained high during the summer as well, and experts anticipate a handsome GDP increase of 0.4 per cent in the final quarter of 2010. "We expect quarterly growth rates of around 0.2 per cent for 2011. The average GDP growth rate will come in at 1.6 per cent in 2010, before declining to 1.4 per cent in 2011. However, we feel that the risk of another recession has diminished," said Bruckbauer. Although the economic recovery will only continue at a moderate pace in 2011, it will be based on a more balanced and broader foundation than in the past.

 charts (PDF; 106 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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