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15.04.2011

Bank Austria economic indicator:
Brilliant start to 2011

  • Bank Austria economic indicator even higher in March than in previous month
  • Trouble spots and risks don't harm Austrian economy's mood
  • Strong 1st quarter 2011 with estimated 0.9 percent rise in GDP on the previous quarter thanks to export industry and revival in investment
  • GDP forecast for 2011 raised from 2.3 to 2.8 percent
  • Annual average inflation 2011 rises to more than 3 percent

The domestic economic engine continues to rev hard. Stefan Bruckbauer, Bank Austria Chief Economist, is of the opinion that "In March the Bank Austria economic indicator even rose one tick on the previous month. For six months it has maintained the high of 3.7 last reached in autumn 2007". Despite disturbing interference from North Africa, Japan and the EU periphery, Austria remains on course for strong growth and is receiving ever-wider support from the domestic economy.

"The current economic recovery is surprisingly resistant to the uncertainties and risks which have increased alarmingly in recent weeks. This is reflected in a sustained buoyancy, both among consumers and in the manufacturing sector", says Bruckbauer. Austrian consumers' optimism increased once again at the end of the first quarter, as there is no end to the good news from the employment market. Austrian entrepreneurs' confidence in a rewarding business trend is only just below the 3-year high at the start of 2011, especially because of support from the favourable international environment. In view of the advantageous order situation and growing cushion of orders, in March confidence in European industry even increased markedly. The indicator, weighted with the Austrian shares of trade, has risen to the highest value for more than 3½ years in view of the continuing favourable mood in Germany and an improved assessment of the business situation in other primary markets, such as France and Italy.

The prevailing high spirits and early indicators so far make it clear that the Austrian economy has got off to a brilliant start in 2011. "We are assuming a strong rise in GDP by 0.9 percent on the previous quarter for Q1 2011. Compared annually, growth was clearly above the 3 percent mark for the first time since the recession", according to Bank Austria economist Walter Pudschedl. At the start of the year it was above all the export industry which kick-started the economic engine. The domestic economy also played a big part in the fast pace. "Whilst private consumption ought to have proved to be a stable growth component, despite higher inflation, it was primarily the tendency to invest which increased strongly in the first quarter of 2011. In view of continually increasing capacity utilization, Austrian entrepreneurs are now catching up on those investments which were left by the wayside in the early, cautious days of the recovery", opines Pudschedl.

In the first few months of this year the recovery has continued on a wider basis than in the previous year and, in the opinion of Bank Austria's economists, will remain on a firm foundation as the year progresses. "The pace of growth has probably passed its peak with the strong Q1 2011 growth. With increases of 0.3 to 0.4 percent on the previous quarter, the Austrian economy will, however, retain its momentum throughout 2011", says Bruckbauer. Growth will continue to be carried by exports, even if the strong euro is likely to dampen the upward trend somewhat. The domestic economy will step up to fill more of the breach. The current backlog in demand is expected to bring about a total rise in capital expenditure of more than 7%. In view of the sustained favourable trend in the labour market, the prospects for private consumption have improved slightly. Thanks to the strong rise in employment, higher inflation and the budgetary cutbacks have not been able to slow the upward trend in consumption. "We have even increased our prediction for economic growth in 2011 by half a percentage point to 2.8 percent, because the international economy is largely resisting the present risks and the domestic economy is gaining", according to Bruckbauer.

Bank Austria's economists have, on the other hand, withdrawn their growth forecast for the coming year. "The coming year will bring much lower average growth than 2011, without the recovery being paralyzed. We are assuming a 1.8 percent rise in GDP for 2012", says Bruckbauer.

Rising commodity prices, rising interest rates
The reasons for the quieter economic upswing next year lie in the tightening of monetary policy, which has already started, in addition to the more restrictive global fiscal policy course. After raising the headline interest rate in April this year the European Central Bank will raise interest rates several notches in addition to reducing liquidity. This will reverse the impending pressure on prices, which runs the risk of softening previously firm inflation expectations. "At the end of 2011 we are expecting the headline rate to be at least 1.75 percent. Another 100 base points could be added in 2012", states Bruckbauer. Following the rise in inflation to 3 percent, high commodity prices are ensuring that inflation is not likely to fall below 3 percent during the rest of the year. "In 2011 Austria will experience inflation above 3 percent for the second time since the introduction of the euro. in 2012 inflation should, however, once again be perceptibly below the 3 percent threshold, even if it remains above 2 percent.", according to Bruckbauer. Bank Austria's economists do not, however, view the expected trend in inflation to be a serious danger to the economic recovery. The mix of more restrictive European, and even global economic policy, the strong euro, high commodity prices and restructuring of the financial markets in 2012 will create a more unfavourable environment for the financial markets, though, than 2011.

tables (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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