Bank Austria Business Indicator:
Stronger growth for Austria's economy in 2010, less momentum in 2011
- Bank Austria Business Indicator declines slightly in July, but the pace of recovery remains high for the time being
- Austrian consumer sentiment up, industrial confidence high thanks to Germany
- Strong summer period pushes growth expectations for 2010 to 1.6 per cent, GDP forecast for 2011 still moderate at 1.4 per cent
- Rising agricultural prices push inflation outlook only slightly upward
The Austrian economy is in considerably better shape at the midway point of 2010. "After the strong economic data for the second quarter of 2010 allowed us to all but forget about the symptoms of the economic crisis, the current Bank Austria Business Indicator promises a continuation of the healing process in Austria. Despite a slight decline, the indicator came in above the 2 per cent mark once again in July. The recovery of the Austrian economy will continue into the autumn, with only a few minor setbacks," said Stefan Bruckbauer, chief economist at Bank Austria.
The positive value of the Bank Austria Business Indicator in July can mainly be attributed to the increased confidence among domestic consumers. Positive trends on the labour market have pushed consumer sentiment to the highest level seen since the end of 2007. Austrian consumers are currently radiating optimism, which is shared by their counterparts in only a few other European countries, including Germany. In contrast, industrial companies in Austria were somewhat more reserved about the future in July. In the opinion of Bank Austria's economists, however, this can be seen as an exaggerated counter reaction to the dramatic increase that occurred last month. "The improved consumer confidence in Austria and the persistently high level of industrial confidence are a result of the positive overall trend in Europe. Germany, which has proven to be an economic powerhouse, is the main source of positive sentiment, which is also spilling over to the neighbouring Austria, with which it shares close economic ties," explained Bruckbauer.
"Since the recovery of the Austrian economy was stronger than originally expected around mid-2010 and is also lasting somewhat longer than anticipated, we have revised our growth forecast for 2010 from 1.3 per cent to 1.6 per cent," said Bruckbauer. However, following the discontinuation of the measures employed to combat the economic crisis, including the global stimulus packages, the still-fragile state of the domestic economy will be reflected in a considerable slowing of the recovery in the winter.
Bank Austria's economists remain sceptical about economic development next year. The most recent data from the US and Asia, whose high growth rates are instrumental in the ongoing recovery, reinforce concerns about the economy. The global economic recovery is still on shaky ground despite the temporary surge in the summer of 2010. A renewed deterioration of the global economy, which would also affect Austria, cannot be ruled out. Nonetheless, the economists at Bank Austria still believe it is unlikely that the Austrian economy will slip back into a recession. "The economic outlook for 2011 is only moderate in an environment that is once again characterised by growing uncertainty. We still expect GDP to grow by 1.4 per cent next year," said Bruckbauer, summing up Bank Austria's forecast. "This means that the growth expectations for 2011 are now lower than those for this year, but the upward trend being experienced this year is largely the result of a catch-up effect caused by the crisis."
The temporary surge in economic performance this summer has also had a positive impact on the job market. "The labour market reacted unusually quickly to the recovery. At an average of 7 per cent, the unemployment rate in 2010 will be lower than last year," revealed Bank Austria economist Walter Pudschedl. However, no further improvement in conditions on the labour market is to be expected next year. The weak economic growth in 2011 will not allow the downward trend in unemployment and the relatively robust employment growth to be maintained.
Rise in agricultural commodities prices, but inflation environment still relaxed
The weather fiascos over the past few weeks and the resulting expectations of crop failures have pushed up the prices for some agricultural commodities. However, the well-stocked inventories should prevent prices from reaching record highs. The effect of these developments on inflation will likely be limited due to the combination of the lower portion of agricultural commodities in the cost of processed foods and the relatively small share (11 per cent) of the food component in the basket of goods in Austria. "In our opinion, there is no reason for excessive inflation worries due to food prices. The rise in agricultural prices will only lead to a slight increase in inflation over the coming months. We have adjusted our inflation forecast for 2010 as a whole by one-tenth of a percentage point to 1.8 per cent, and we expect inflation to come in at around 2 per cent in 2011," said Pudschedl. Overall, the price environment remains relaxed primarily due to global overcapacities and fairly moderate wage development amidst relatively tense conditions on the labour market.
charts (PDF; 72 KB)
Enquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel. +43 (0) 50505 - 41957