Bank Austria Business Indicator:
GDP growth above 3 per cent in 2011 despite slowing trend

  • Growth forecast for 2011 raised to 3.1 per cent after a spectacular start to the year
  • Bank Austria Business Indicator weaker in April – pace of growth expected to continue slowing over the course of 2011
  • Inflation to peak at up to 3.5 per cent in the summer and then decline
  • GDP growth of less than 2 per cent expected in 2012

The Austrian economy appears to have passed its peak at the beginning of the second quarter of 2011. "The Bank Austria Business Indicator declined slightly in April, thus marking the start of a deceleration in economic growth. Following six months of extraordinarily high readings, the indicator is now at 3.4 points," reported Stefan Bruckbauer, Bank Austria's chief economist. The high pace of growth that the Austrian economy has experienced over the last year coming out of the economic crisis can no longer be maintained in an international environment that is now somewhat less favourable.

At the beginning of the year, accelerated foreign demand pushed economic growth to 1.0 per cent in quarter-on-quarter terms and 4.2 per cent in year-on-year terms. "The Austrian economy is now starting to head into calmer waters. The economic support from abroad is starting to diminish somewhat," said Bruckbauer. Industry is experiencing a downward trend in orders, the number of orders on hand is growing less quickly and sentiment in the sector is deteriorating all over Europe. "The sentiment indicator weighted with Austrian foreign trade shows a clear decline, as sentiment in the manufacturing sector fell by at least a notch in April for nearly all of the major trading partners, including Germany, Italy and France. This had a major influence on the decrease in the Bank Austria Business Indicator," reported Bank Austria economist Walter Pudschedl. However, domestic industrial companies are somewhat more optimistic about the future development of business than the average in the Eurozone due to the positive signals coming out of Central and Eastern Europe. The heightened sense of caution in the main markets of Europe will likely start to affect sentiment in Austria's industrial sector soon. Mounting inflation worries dragged Austrian consumer sentiment down in April. Despite the continuing improvement in labour market conditions, the most recent estimation was somewhat lower than the figures from the previous month. However, consumers are still very optimistic about the coming summer months.

"Starting in the second quarter, the pace of growth for the Austrian economy will be barely half as strong as it was during the winter months. With an increase of 0.3 to 0.4 per cent in quarter-on-quarter terms until the end of 2011, economic activity will continue to see a considerable and – more importantly – stable upward trend," said Pudschedl. While the stimulus from abroad is diminishing, the domestic economy will become a more important driver of development. Private consumption will continue its stable growth largely unabated thanks to the marked increase in employment and the decline in unemployment. In addition, investment activity, which has been on the rise since the middle of 2010, will provide even more support in the coming months. "Despite the emerging economic slowdown, economic growth will be much more robust in 2011 than in the previous year. Since the start of the year was somewhat stronger than we had anticipated, we are raising our growth forecast for 2011 from 2.8 per cent to 3.1 per cent," said Bruckbauer. This means that Austria's economic output will considerably exceed the pre-crisis levels.

"The inflation rate will remain above 3 per cent in the coming months and may even reach 3.5 per cent during the summer," said Bruckbauer. Thanks to the lower value at the beginning of the year, average annual inflation will come in at 3.2 per cent. Bank Austria's experts expect an inflation rate of 2.2 per cent in 2012.
The current Bank Austria Business Indicator clearly shows that the Austrian economy has entered into a more sedate period of growth, and this is reinforced by the fact that the recovery is being threatened by more and more stress factors. Rising interest rates, high commodity prices, a weak US dollar, the political conflicts in North Africa and the Middle East, and the debt problems in the EU peripheral countries are all dragging down the pace of growth. "The risks to growth have increased considerably in recent weeks. In addition, tighter monetary policy and more restrictive public budgets are leading to a more moderate, but persistent, growth trend. We expect to see GDP growth of just 1.8 per cent in 2012," concluded Bruckbauer.

 tables (PDF; 105 KB)

Enquiries: Bank Austria Economics & Market Analysis Austria
 Stefan Bruckbauer, tel. +43 (0) 50505 - 41951;
 E-mail: stefan.bruckbauer@unicreditgroup.at

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