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15.06.2011

Bank Austria economic indicator:
Austria remains on track for growth but has passed the zenith

  • Sharp decline in Bank Austria economic indicator in May
  • Euphoria in industry is abating. Consumer confidence remains relatively stable
  • Economic growth from first to second quarter expected to drop to 0.5 per cent, a figure only half as large as expected. Forecast for 2011 as a whole remains at 3.1 per cent
  • Economic recovery pushes employment in Austria to record level
  • Risks will curb growth in 2012 - GDP forecast drops to 1.8 per cent

The Austrian economy has finally left the most dynamic phase of the recovery behind it. After a strong start to 2011, the pace of growth has slowed noticeably. Bank Austria Chief Economist Stefan Bruckbauer: "The Bank Austria economic indicator dropped to 2.9 points in May. The upswing that started in April is still in place. The domestic economy peaked in the spring. Much slower economic growth is expected over the summer."

Bruckbauer: "The repeat decline in the Bank Austria economic indicator puts a damper on economic prospects. This turn of events can be traced mainly to basic international conditions, which have become less the favourable." The level of confidence in European industry is weighted to take Austrian shares in trade into consideration. This parameter has seen a relatively substantial decrease now for the second consecutive month. Confidence on the further development of business has declined in nearly all countries in Europe except the Scandinavian countries. The sentiment continues to be very good in the key selling markets for Austrian industry, especially Germany. The recent state of euphoria has abated, however. The caution increasingly seen in the main markets is now affecting Austrian industry as well. In May, the export-oriented manufacturing sector in Austria recorded its biggest decline since the winter of 2009. The dip in growth in new business and the slower rise in the level of outstanding orders are two factors that are souring the mood in the sector. Industry confidence remains as high as it was last autumn, however, when Austrian industry was on a steady growth course. Bruckbauer analysed this situation as follows: "The euphoria in Austrian industry is slowly abating whereas consumers are still quite confident and continue to be much more optimistic than in most other European countries."

He continued: "Following the upsurge in GDP at the start of 2011, economic growth in the second quarter will be just half as strong at 0.5 per cent in comparison with the previous quarter." Exports accounted for nearly two thirds of economic expansion at the start of the year but the pace of growth has slowed considerably since March. The upswing in domestic demand remains stable. The improved labour market data and the robust growth in retail sales indicate a continuation of the solid growth for private consumption. The upswing in capital expenditure in place since mid-2010 continues to bolster growth. That is because there is pent-up demand for capital expenditure in domestic industry due to the rise in capacity utilisation prior to the crisis. "Domestic demand is not strong enough to maintain the export-driven pace of recovery from the start of the year. Although the economy will expand at a slower pace in the second half of the year, economic growth in 2011 will be much stronger than it was last year. We expect to see GDP rise by 3.1 per cent," Bruckbauer added.

Employment up by 1.8 per cent in first half of year
The economic recovery has reached the labour market. The first half of 2011 saw the workforce grow by 60,000 compared to the same period last year. That corresponds to an increase of 1.8 per cent. Bank Austria economist Walter Pudschedl: "The fast pace of job growth in the first six months of the year cannot be maintained in the second half of the year owing to the level of economic activities. The average for 2011 as a whole is expected to exceed 3.4 million employees, which means a new record is in sight." The unemployment figures are also decreasing steadily in the current upswing. Consequently, the final opening of the labour market to people from Eastern European countries that acceded to the EU in 2004 did nothing to change the situation. The number of unemployed fell by an estimated 4.5 per cent in the first six months. Employment is now higher than its pre-crisis level but the rise in joblessness in 2011 has not yet been offset. Bank Austria economists predict that the annual average unemployment rate will drop from 6.9 per cent in 2010 to 6.6 per cent in 2011. That still puts it far above the 5.9 per cent recorded in 2008.

More balanced growth in sight – also from a regional perspective
Pudschedl: "We are optimistic that the upturn in Austria will be a lasting one. After all, the base of the recovery is broadening and becoming more stable. Domestic demand is contributing more to the growth of the domestic economy. The trend to greater balance is continuing. That means differences in growth amongst the individual Austrian provinces will also be less in 2011 than they were the year before." The Austrian provinces with powerful industrial sectors are at a certain advantage again in 2011 thanks to strong export support early on in the year, with the brightest prospects seen for provinces with broader-based economies such as Upper Austria and Vorarlberg. Styria, the frontrunner in growth last year, will be amongst the most dynamic Austrian provinces again in 2011. Bank Austria economists predict these provinces will see economic growth of about 3.5 per cent. Vienna and Burgenland will trail the pack in terms of growth with a figure of less than 3 per cent in 2011, but they will be only slightly below the Austrian average because of the broader-based growth.

Bank Austria economists believe the recovery of the domestic economy will continue. Various factors will put a damper on the pace of recovery. They include higher inflation due to commodity prices, debt reduction by businesses and private households and less willingness by economic players to bear risk as well as the effects of the consolidation of public budgets and a continual tightening of monetary policy. Bruckbauer: "Even if the ECB does not increase the key interest rate in June, we expect to see it do so by 25 basis points to 1.5 per cent in July. At year's end, the refinancing rate will already have reached a level of at least 2 per cent. That costs the Austrian economy growth; according to our estimates, up to 0.25 per cent compared to a situation in which the interest rate remained unchanged." GDP growth is predicted to be 1.8 per cent for next year, which means growth prospects are much more reserved than for 2011.

 tables (PDF; 106 KB)

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

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