Bank Austria Economic Indicator:
2011 leads to more stimulus for Austria’s economy
- Bank Austria Economic Indicator reaches three-year high in January
- Strong increase in GDP by 0.5 percent in the 1st quarter of 2011 over the previous quarter expected
- Strong export trend continues, investment gains momentum
- Austria is among the counties with highest growth in the euro zone – Growth expectations for 2011 raised to 2.3 percent
- Increase in GDP of 2.0 percent expected for 2012
Economic recovery has increasingly stabilised in Austria in the past few months. "The Bank Austria Economic Indicator rose to 3.9 points in January, thus reaching a three-year high. Nothing has remained from the deterioration of the economic climate which became obvious in late autumn 2010. The Austrian economy has been in a brilliant constitution after the turn of the year", says Bank Austria Chief Economist Stefan Bruckbauer. It seems that nothing will prevent the economic recovery from continuing in the next few months.
"The sentiment among domestic consumers improved significantly at the beginning of the year, which made the Bank Austria Economic Indicator surge considerably", Mr Bruckbauer says. The constant improvement of the situation in the labour market has a positive impact on confidence and also supports consumers' desire to spend their money, while the negative impact of budget consolidation on the purchasing power has not been noticeable yet. Moreover, the currently low interest level provides not many incentives for saving money; the savings-income ratio shows a downturn trend. "The sentiment of the domestic industry has improved further. In the wake of a downward trend on European level, Austria’s economy is optimistic particularly due to the positive development in several Eastern European countries", says Helmut Bernkopf, Bank Austria Board Member responsible for Corporate & Investment Banking. According to estimates by Bank Austria economists, the framework conditions for the Austrian economy are thus more favourable than in the past three years or more.
The Austrian economy seamlessly continued the pleasingly dynamic development at the end of 2010 with an increase of the GDP of 0.6 percent compared with the previous quarter, which allowed for economic growth of1.9 percent in the full year of 2010. "We expect the GDP to rise by 0.5 percent in the first quarter of 2011 compared with the previous quarter since the Austrian economy is still pushed considerably by foreign demand", Mr Bruckbauer says. Such a development is indicated not only by the improving sentiment of the export-oriented industry but also by the considerable increase in the number of incoming orders at the beginning of the year and the significant increase in the order backlog in the sector. But also domestic demand will make its contribution to growth in the first quarter. "We expect the moderate but stable upward trend of private consumption to continue as a result of the still favourable development in the labour market. In particular, the existing need to catch up is expected to be reflected in a considerable increase in the next few months."
"In the course of the year 2011, support of growth by foreign demand will no longer be as strong as at the beginning of the year. Exports, however, will support the constant economic upturn in Austria throughout 2011", says Bank Austria Economist Walter Pudschedl. In total, the real increase in exports is expected to amount to 7 percent after almost 11 percent one year earlier. The development of private consumption involves rising risks given the rather moderate upward trend of salaries and the slowing improvement of the labour market. The low interest level, however, will contribute to further rather stable growth of consumption at the expense of the savings-income ratio in 2011, although the speed is expected to decline in the second half of the year. In the full year, consumption will rise by nearly 1 percent. "Prospects for investment continue to improve. With an increase of 3.5 percent, investment will even become one of the most important growth engines of 2011", Mr Pudschedl sass. The comeback of investment is a result of the grown backlog of orders and the increase capacity utilisation in the industry which has been above the long-term average for many months already. Construction investment will show a rather weak development as it suffers from budgetary restraint. The main contribution will thus come from equipment investment.
The dynamic growth development will show a slight downward trend in the course of 2011. With growth rates of 0.3 to 0.4 percent over the previous quarter, however, the recovery of Austria’s economy will continue throughout the year. "Given the constantly favourable export prospects and in particular the improved investment expectations, we have raised our growth forecast to 2.3 percent for 2011. Austria thus is among the countries with highest growth in the euro zone", Mr Pudschedl says.
The stimulus from abroad will increasingly spread to the domestic economy in 2011 and will improve the prospect of self-supporting sustainable growth of the Austrian economy. While foreign demand contributed almost 80 percent to economic growth last year, domestic demand will contribute slightly more than the half in 2011. "The increase in the GDP will be on a more stable and more balanced basis in Austria in 2011 compared with the previous year. This will make the economic development more resistant to single risk factors", Mr Bruckbauer points out.
Bank Austria economists are also rather optimistic for 2012. "Signs of smooth continuation of economic upturn next year are increasing. A number of risk factors exist, however. They are the reason why we expect the dynamic development to be more cushioned in 2012 with an increase of the GDP of 2 percent", Mr Bruckbauer says. The expected tightening oft he still loose monetary policy and the containment of the dynamic development of public debt will put a strain on growth as will the strong increase in commodity prices.
For further inquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Phone +43 (0) 50505 - 41957;
E-mail: Walter.Pudschedl@unicreditgroup.at
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