How did Austria's provinces come through the crisis?
- Styria, Upper Austria and Carinthia hit the hardest, Vienna and Burgenland fared better
- Advantageous composition of the industrial sector in Upper Austria and Vorarlberg mitigated the downturn; opposite situation in Salzburg and Carinthia
- Above-average recovery for Upper Austria and Vorarlberg in 2010; Vienna and Burgenland came through crisis best
- Austria's provinces have only one tenth of the debt of their German counterparts
Austria's economy was hit by the worst downturn since World War II in 2009. The country is now on the road to recovery, but the effects of the recession are still apparent. To take stock of the situation, Bank Austria Economics has prepared an analysis of how the country's individual regions came through this crisis. "We were surprised by some of the results of our study," said Helmut Bernkopf, Bank Austria's director for corporate and investment banking. "The scope of the downturn was not always determined by dependency on exports, though this of course played a major role," he elucidated.
Austria's exports contracted by roughly 25 per cent over the course of 2008 and 2009, and have recovered about 5 per cent since hitting their low. As a result, industrial production declined by 18 per cent, and has gained about 8 per cent again since. Retail sales grew by 3 per cent in real terms during the crisis, despite the fact that joblessness increased from 5.6 to 7.5 per cent. This outlines the conditions in the country during the crisis – which Bank Austria considers to be over, though the economy is not recovering as quickly as it could.
"With economic contraction of 4.7 per cent in 2009, Styria seems to have been hit the hardest, while Vienna (minus 2.6 per cent) and Burgenland (minus 2.5 per cent) fared the best," said Bernkopf, summarising the results of the study. One of the key factors behind this disparity was the respective levels of industry as a share of the overall economy, which range from 30 to 25 per cent in Upper Austria, Vorarlberg and Styria to just under 10 per cent in Vienna. Another factor was naturally the importance of exports for the province as a whole, whereby there is a strong correlation between the share of industry and dependency on exports. However, the provinces with the greatest share of exports did not necessarily see the most significant declines in industrial output. "Our analysis showed that the provinces of Vorarlberg and Upper Austria should have been hit hardest by the crisis. But industry proved to be more robust than expected here," said Bank Austria's chief economist Stefan Bruckbauer. He continued: "The reverse applies to Carinthia and Salzburg, whose industry contracted to a larger degree despite lower dependency on exports." The crisis also had an above-average impact on Styria, as expected. The declines in industrial output in Vienna, Burgenland and Tyrol were in line with the export levels of these provinces.
Industry accounted for roughly 70 per cent of the total contraction of the economy in 2009, but the development of construction and the services industry also played a significant role. "The construction industry made a positive contribution to growth in two provinces, namely Upper Austria and Burgenland, in 2009. In contrast, the construction industries in Tyrol and Vorarlberg made above-average negative contributions to growth," said Walter Pudschedl, Bank Austria economist and the author of the study.
Roughly one fourth of the slide could be attributed to the services industry. Differences were seen from province to province here, as well, and the development of this segment significantly influenced the development of employment. The number of jobs in Austria declined by 1.4 per cent overall in 2009. The labour market fared the best in Burgenland (minus 0.2 per cent), while Styria (minus 2.2 per cent) and Carinthia (minus 2.3 per cent) were hit the hardest. The services industry in Burgenland recorded an increase in jobs of over 1 per cent in 2009, while Carinthia saw a decline of 0.7 per cent. Employment in Upper Austria's services industry also contracted by 0.8 per cent. Overall, the services industry made a negative contribution to economic growth in nearly every province, the only exceptions being Tyrol and Burgenland. "Public administration, social services and healthcare made positive contributions to growth. The retail segment was stable, tourism saw a small decline, and business services contracted significantly," said Bruckbauer. Depending on the focuses of the respective economies, these declines also had noticeable impacts in the individual provinces. The business services segments in Styria and Upper Austria were affected especially severely.
The overall developments in the individual provinces break down as follows:
- Styria (minus 4.7 per cent): high importance of industry and exports (impact), disadvantageous composition of industry sector plus poor development of construction and services industries
- Upper Austria (minus 4.1 per cent): significant impact, but advantageous composition and strong construction industry helped, weak services industry (business services)
- Carinthia (minus 4 per cent): medium impact, but disadvantageous composition, weak construction and services industries caused contraction
- Salzburg (minus 3.6 per cent): medium impact, but disadvantageous composition; stabilising effect of construction and services industries
- Vorarlberg (minus 3.5 per cent): strong impact, but advantageous composition; stabilisation from services industry, weak construction industry
- Lower Austria (minus 3.5 per cent): medium impact, relatively advantageous composition, services industry and strong construction industry stabilised economy
- Tyrol (minus 3 per cent): medium impact and very strong services industry help despite weak construction industry
- Vienna (minus 2.6 per cent): low impact on industry sector, but weak services industry (business services, tourism) and little support from construction
- Burgenland (minus 2.5 per cent): low impact, very strong services industry and construction key advantages
As far as 2010 is concerned, Bank Austria expects that these differing impacts will continue, but as growth rates. This does not mean that the hardest-hit provinces in 2009 will be the best performers in 2010, however. "We expect that Upper Austria will achieve the best growth in 2010. But Vorarlberg and Styria will also do a little better than the national average," said Bernkopf. Taking the lower levels of contraction in some provinces in 2009 into account, Vienna and Burgenland came through the crisis in better shape than other provinces. Bank Austria director Bernkopf added: "Austria's banks provided financing to provincial and municipal governments throughout the crisis, and the direct lending volume has nearly reached 2006's record high."
Bank Austria has maintained its above-average market share of roughly 17 per cent for direct financing, but is also successful with other forms of financing, for example the bond recently issued by the City of Vienna to finance Wohnbaubank bonds, which are used to provide capital for social building projects in the city.
The crisis also naturally had an impact on the provincial budgets. While the provinces made a positive contribution to the national budget balance of plus 0.1 per cent in 2008, this contribution is currently estimated at minus 0.3 per cent for 2009. Total provincial debt is estimated to have increased by roughly EUR 500 million to EUR 6.3 billion. Per capita provincial debt is expected to come in at an average of roughly EUR 650, headed by Carinthia (about EUR 2,200) and Lower Austria (roughly EUR 1,500). Salzburg, Vienna and Burgenland are in the middle of the pack, while Styria, Tyrol and Vorarlberg will have the lowest levels. Upper Austria has remained debt free. However, Bank Austria Economics stressed in its study that despite the fact that provincial debt increased, the average of 2 per cent of GDP is still considerably lower than in neighbouring countries. "Even in the most highly indebted province, Carinthia, government debt is only about 5 per cent of total economic output, compared to 6.2 per cent for Germany's least indebted state, Bavaria," said Bernkopf. State debt in Germany is 20 per cent of GDP, ten times as high as in Austria. Switzerland's cantons and Italy's administrative regions also have higher levels of debt than Austria's provinces. This is naturally influenced by the different systems of financial equalisation, but shows that the increase in provincial debt poses no risk for Austria's creditworthiness at this time.
Enquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel. +43 (0) 50505 - 41957