Bank Austria Economics:
Nearly all federal provinces have overcome the economic slump

  • 2010, the year of recovery: The orientation to exports and to industry was a crucial factor in the upswing.
  • Styria led the way in growth rates among the Austrian federal provinces in 2010 with 2.8 per cent, almost twice the rate in Vienna.
  • Outlook for 2011: Strong demand from abroad will keep industry humming along. Upper Austria and Vorarlberg have the brightest prospects for growth.
  • By the end of 2011, nearly all federal provinces will have returned to their pre-crisis levels. Vienna and Burgenland will have fared best overall in making it through the crisis.

The Austrian economy staged an impressive comeback in 2010 in the wake of the recovery in global demand, posting 2.0 per cent GDP growth. In a current study, Bank Austria Economics outlined the effects of the global upswing on the Austrian provinces. Helmut Bernkopf, Head of Corporate & Investment Banking at Bank Austria, had this to say: "The good news is that the Austrian federal provinces have largely recovered from the severe economic downturn. Our study shows that the federal provinces are at a clear advantage owing to their strong export orientation and robust industry. This allows them to achieve much higher growth rates than the average. The clear industrial orientation of Styria made this region a frontrunner in terms of growth, followed by Carinthia and Tyrol. With economic expansion of 2.8 per cent, these two provinces enjoyed a growth rate twice as high as in Vienna," Helmut Bernkopf said in summing up the results. Federal provinces with a heavy emphasis on the services sector like Vienna and Lower Austria lagged behind the Austrian average in 2010. The construction industry dampened the pace of economic activity in all federal provinces last year because of difficult fundamental conditions in that sector.

Exports bolstered industry in 2010, making it a key engine of growth. Although industry generates only about 20 per cent of total economic output, it accounted for about half of total growth. Bank Austria Chief Economist Stefan Bruckbauer analysed the situation as follows: "The high degree of orientation to industry during the crisis and in the recovery in 2010 was crucial for the economic trend in the federal provinces but so too was the actual mix in the production sector." Sectors with a high rate of exports were growth drivers in 2010, for example, vehicle makers and the steel and electronics sectors. Industry gave a particularly powerful boost to economic activities in federal provinces such as Styria, Carinthia and Upper Austria, where industry had a corresponding scale and the appropriate mix of sectors. More than three quarters of total growth in these federal provinces can be traced to industry. Sectors with a small percentage of exports, such as the food and beverage industry, tended to see restrained growth. This aspect, among others, limited the amount industry contributed to overall growth in Vorarlberg and Tyrol.

The construction sector put a damper on the growth rate across Austria in 2010 that averaged 0.3 per cent. This effect was bigger than average in Upper Austria, Burgenland and Lower Austria. Bruckbauer:  "The services sector was an important mainstay of growth in the federal provinces. The upturn was especially large in business support services thanks to the fast-growing production sector and in several public service areas such as health, education and social services." Upper Austria, Salzburg, Burgenland and Vorarlberg benefited the most from these trends. As a major centre of services, Vienna contributed the most to growth in this sector of all federal provinces despite its slow pace of growth. That was because of the size of the sector, which constitutes more than 80 per cent of total economic output in the Austrian capital.

Labour market benefited from growth
The robust economic recovery provided noticeable relief to the labour market in the Austrian federal provinces. Employment rose by 0.6 per cent across Austria. The rate of growth was double that figure in the federal provinces of Vorarlberg, Burgenland and Tyrol. The employment rate has been increasing at an even faster pace in recent months. Bruckbauer: "At the end of the first quarter of 2011, the employment rate in most federal provinces hit new record-high levels. Burgenland and Vorarlberg have already offset the jobs lost during the crisis." The unemployment trend is not yet as rosy. Bruckbauer: "The ongoing recovery will push the unemployment rate to below the pre-crisis level by the end of 2011 in Burgenland only. The unemployment rate is expected to be about one third above the pre-crisis figure in the other federal provinces at the end of the year."

Outlook for 2011: The recovery will continue and become more stable.
Bank Austria expects a change in the composition of economic growth in 2011. Stimuli from abroad are ebbing slightly so industry will be able to contribute less to growth than in 2010.  The services sector, for its part, will play a bigger role and the construction industry should at least reach a point where it is no longer a drag on the economy. Economic growth in 2011 will therefore be broader-based and more stable. "We expect to see Upper Austria and Vorarlberg achieve the fastest growth amongst the Austrian provinces in 2011. Federal provinces with broad-based industry and a strong services component have the brightest prospects for further gains," Bernkopf said about this year's growth regions.

Which federal province will have fared best overall in making it through the crisis? That depends not just on the pace of recovery but naturally also on the severity of the economic slump during the crisis. The federal provinces now enjoying less dynamic growth had advantages during the economic crisis for the most part. Bernkopf: "By the end of 2011, nearly all federal provinces will have reached an economic level higher than before the crisis. Vienna and Burgenland will have fared best in making it through the crisis because the economic slumps in these two provinces were relatively mild. Lower Austria will be the only province that will have to wait until 2012 to close the gap between current and pre-crisis levels."

Enquiries:  Bank Austria Economics & Market Analysis Austria
 Walter Pudschedl, Tel. +43 (0) 50505 - 41957
 E-mail: walter.pudschedl@unicreditgroup.at

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