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15.10.2012

Bank Austria Business Indicator:
Economic sentiment low – no improvement until next year

  • Bank Austria Business Indicator continues downward trend and drops for fourth month in a row to -1.2 points – its lowest reading since mid-2009
  • Despite solution to eurozone crisis taking shape, sentiment of consumers and producers still trending down
  • That said, retail showing weak signs of growth; data on industrial output and exports relatively stable – no recession on the cards
  • More optimistic outlook for 2013 after stagnation in second half of 2012: gradual improvement as year goes on, with economic growth rising to 1.2 percent

After the tangible slowdown in growth dynamics in the year to date, the Austrian economy switched down another gear in the early autumn. "The latest Bank Austria Business Indicator fell once more in September. Although the pace of this decline was stable compared to the previous month, coming in at -1.2 points this is now the lowest indicator reading for more than three years", said Stefan Bruckbauer, chief economist of Bank Austria. The engine driving the Austrian economy is now visibly spluttering given the feeble demand from many countries around Europe. That said, the situation in Austria is still significantly better than in most other countries of the eurozone. "Bank Austria's Business Indicator has ended up in negative territory for the fourth month in a row. This means we are set for stagnating economic activity in the second half of 2012, and it also signals weak economic development through the turn of the year", explained Bruckbauer.

Bank Austria's Business Indicator sank further in September, principally due to the confidence indicators which worsened across the board. Sentiment among Austrian consumers is ever gloomier, and is not being helped by the unfavourable labour market figures. The negative signals from the country's trading partners have had an equally negative impact on the business assessments of Austrian industry. "So far there has been no turnaround in the downward sentiment spiral for either Austrian consumers or Austrian producers which began in May of this year. The foundations laid to solve the euro crisis have brought some initial calm to the capital and foreign currency markets, but this has yet to impact on the mood in the real economy", said Bank Austria economist Walter Pudschedl.

In the last few months there has been a growing discrepancy, and not just in Austria, between weak survey figures and slightly more favourable real economic data. Although consumer sentiment has really darkened, retail sales continue to exhibit modest growth. The hard figures available so far for industrial output and foreign trade are also relatively stable, in spite of the marked deterioration in industrial confidence. Given the high proportion of sentiment indicators, the decline in the Bank Austria Business Indicator in recent months has probably overestimated the actual downturn in the economy. Pudschedl explains: "In spite of the fact that the Austrian economy has veered off its growth trajectory and the overall sentiment has worsened, we do not assume that this will lead to a recession. We still expect an increase in GDP throughout 2012 of no more than 1 percent."

The marked austerity measures of many euro countries are now being secured at European level too by the European Central Bank with the ESM safety net and the banking union, as part of its new bond-buying programme (Outright Monetary Transactions - OMT). This has significantly lowered the risk of seeing a renewed escalation of the euro crisis. "The economy does not yet seem to have much confidence in the successes enjoyed in stabilising the eurozone. It will take some time before this happens, but then we expect to see a noticeable improvement in sentiment. However, the return to a robust and steady growth trajectory will be a sluggish process, and the flagging economy is set to stay through the turn of the year", said Bruckbauer, talking about future developments. For 2013 the economists at Bank Austria assume that economic growth will be somewhat higher in comparison to this year, coming in at 1.2 percent. The growing confidence will be reflected throughout 2013 in a gradual but subdued revival of investment activity. Supportive factors in this respect could include the first signs of stability in the eurozone economy as well as the growing demand from the USA, which will soon provide some tailwind for the Austrian export economy. Bruckbauer sums up: "Economic growth in Austria in the coming year will remain limited given the fiscal challenges – albeit gradually fewer in number – to consolidate debt throughout Europe. This means the potential growth rate of just over 2 percent will remain out of reach for the time being."

 charts (PDF; 116 KB)

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

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