Bank Austria Business Indicator:
Peak of recovery speed is over
- In May, Bank Austria Business Indicator slightly decreases from two-year-high
- Industry sentiment continues to improve, consumer confidence declining
- Strong second quarter, but growth risks increasing
- GDP for 2010 and 2011 still expected at 1.3 per cent and 1.4 per cent
In spite of the weak GDP figures in the first quarter with a slight decline of 0.1 per cent as compared to the previous quarter, the Austrian economy is largely still experiencing a stable recovery trend. “At 1.8 in May, the Bank Austria Business Indicator shows a noticeable upward trend of the Austrian economy”, says Bank Austria chief economist Stefan Bruckbauer. “However, the slight decline as compared to the previous month proves that the speed of recovery apparently has passed its peak”, Mr Bruckbauer continues.
The upward trend of the domestic business sentiment is curbed by declining consumer sentiment in Austria. While the labour market situation tended to improve, it remains tense in many industries. Furthermore, discussions about public spending cuts and the increase in inflation caused by the oil price are a burden, too. “While consumer confidence declined noticeably in May, industry sentiment is still improving”, Mr Bruckbauer says. “The perceptible improvement in sentiment on an international level is having a positive influence on domestic material goods manufacturers”, Mr Bruckbauer continues. In addition to the upwind, coming mainly from Asia, momentum from Europe – which differs regionally but is increasing on the whole – leads to better sentiment. The domestic industry benefits from the fact that the recovery of industry sentiment is making relatively good progress especially in those European countries which have close ties with the domestic economy, the most important one being Germany, but also some Eastern European countries.
Based on recent data, Bank Austria’s economists expect a considerable increase of domestic economic performance in the second quarter. “Following stagnation at the beginning of the year, we expect GDP to increase by 0.7 per cent in the second quarter as compared to the previous quarter. Year-on-year, this corresponds to a clear increase of more than 1.5 per cent for the first time since the beginning of the economic crisis”, Mr Bruckbauer says. Currently, economic momentum is supported by exports. In addition to global increase of international demand, especially from the fast recovering growth markets of Asia, the weaker euro favours the upward trend. “The weaker euro improves price competitiveness of Austrian export products. While imports become more expensive, the situation results in an advantage for the Austrian economy which is strongly oriented towards exports”, Mr Bruckbauer says.
This year, the second quarter will in all probability be the quarter with the highest economic momentum, even though exports will continue to benefit from the changed exchange rates over the next months and provide a growth impetus for the domestic economy which had not been expected to such an extent so far.
As the current decline in consumer sentiment - which is reflected in the latest Business Indicator – shows, the situation of consumption will be increasingly tense during this year and curb growth outlook. In spite of the unexpected support from exports, Bank Austria’s economists still expect GDP to increase by 1.3 per cent in 2010. “The reduction of the budget deficit will affect economic dynamics in Austria as from 2011, and the impact will be increased due to synchronous saving in Europe”, according to Mr Bruckbauer. “However, we consider it unlikely that recovery of the Austrian economy ends due to increasing risks. We still expect moderate growth to continue with GDP growth of 1.4 per cent in 2011”, Mr Bruckbauer concludes.
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For further inquiries: Bank Austria Economics & Market Analysis Austria
Stefan Bruckbauer, Tel. +43 (0) 50505 – 41951