Bank Austria Business Indicator:
Economy still on the up despite growing risks

  • Bank Austria Business Indicator remains at three-year high in February
  • Austria's economy still buoyant, domestic demand on the increase, equipment spending up by over 6% in 2011
  • Exports still driving growth in 2011 despite growing risks associated with raw material prices, the EU debt crisis, and the consequences of the earthquake in Japan
  • GDP expected to rise by 2.3% for 2011 compared to the previous year despite drop in quarterly growth rates

Strong demand from abroad is fuelling the Austrian economy's continuing recovery. "February's figure of 3.7 saw the Bank Austria Business Indicator match the three-year high of the previous month once again," confirms Bank Austria's Chief Economist Stefan Bruckbauer. "The upturn is stabilising, with the economic climate continuing to brighten up." As far as the economists at Bank Austria are concerned, the economic upturn in Austria should not be jeopardised by current risk factors such as rising raw material prices, uncertainty regarding the debt crisis in a number of euro zone countries, or the consequences of the earthquake in Japan. Having said this, there is a feeling that the most dynamic economic phase has now run its course.

"The buoyant domestic economy should mean the current upturn will remain just as strong over the coming months, even if a more detailed analysis indicates a slight decrease in dynamism," explains Mr Bruckbauer. The favourable mood amongst Austrian consumers is ensuring the Bank Austria Business Indicator remains at its high level. "The current optimism among domestic consumers is reinforcing our belief that private consumption will continue to underpin economic growth thanks to favourable employment trends, although this may taper off towards the end of the year," maintains Mr Bruckbauer. Budget consolidation, higher inflation, and rising interest rates are only expected to have a small impact on private consumption, with Austrian households reducing their traditionally high saving levels slightly given that demand for credit remains understandably restrained. After the 1% real-term increase in private consumption during 2010, however, the total increase for 2011 is expected to be slightly lower, at 0.8%.

Domestic demand will become more dynamic in the coming months thanks to higher investment levels. "The moderate upturn in investment capacity since the middle of the previous year will accelerate," states Bank Austria economist Walter Pudschedl with some confidence. "Capacity utilisation within domestic industry is now even higher than in Germany and is already greater than before the crisis. Big increases in terms of new orders and growing order backlogs have created pent-up demand. This will see investment in equipment increasing by over 6% in 2011. By contrast, tightening of the public purse strings will ensure that investment in buildings remains at a modest level during the current year.

Dynamic order levels from emerging nations, mainly in Asia, have now also seen trade pick up substantially within Europe. "Confidence within Austrian industry has stabilised at its highest level for more than three years, helped by the favourable mood within Europe," explains Mr Pudschedl. Whilst the positive mood in Italy, France and some Eastern European countries such as Slovakia and Poland has ebbed away slightly in recent times, Germany continues to power ahead as an economic driving force. The solid backlog of orders in hand means that industry in Europe and Eastern Europe is set to continue enjoying solid production growth over the coming months. "In any case, demand from abroad will continue to drive the domestic economy during the months to come, even if the upturn were to slow over the medium term," according to Mr Pudschedl.

Soaring raw material prices, a situation exacerbated by unrest in the Arab world, have increased the risks of the world economy experiencing less dynamic growth. In addition, concerns are increasing about the negative economic consequences of the events in Japan, at least in the short term, although the current lack of data makes it impossible to determine what these may be with any certainty. The most obvious danger in terms of development in Europe remains the rather tense debt situation affecting the countries at the periphery of the EU. "The measures suggested at the weekend's EU summit may again prove insufficient. Greater flexibility would be a better bet in terms of stabilising the situation," believes Mr Bruckbauer.

Mr Bruckbauer describes Bank Austria's latest growth scenario for the current year thus: "We are predicting that GDP will increase by 2.3% in 2011, with economic growth sustained in relatively equal measure by domestic demand and demand from abroad. This represents even stronger growth than in 2010. Having said this, the quarterly growth rates for 2011 will fall to some extent compared to the very strong growth in the last three quarters of 2010." With increases on the previous quarter ranging from 0.3% to 0.5%, the Austrian economy is set to continue in fine form throughout the current year.

 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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