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Bank Austria Economics Department:
Austrian provinces dynamic through stormy times

  • 2011, the year of two halves: fast, export-driven recovery with signs of fatigue towards end of year; hopes for revival at end-2012
  • Styria leading the growth charts in Austria for second time in a row; at roughly 4 percent it is expanding twice as fast as Carinthia bringing up the rear
  • Almost every federal province surpassed their pre-crisis levels at the end of 2011 – Burgenland survived the crisis in the best shape overall
  • Outlook for 2012: muted growth with moderate support from exports, consumer goods and services make equal contributions to growth
  • Advantage for provinces with broadly-based industries: Upper Austria and Vorarlberg will be some of the strongest growing provinces in 2012

The pace of the recovery in the Austrian economy noticeably slowed in the second half of 2011 as the global economy changed down a gear, bottoming out around the end of the year. Nonetheless, the Austrian economy still managed to record an impressive rate of annual growth in 2011 amounting to 3.0 percent thanks to the strong start to the year. In their latest analysis the economists of Bank Austria took stock of how the Austrian provinces developed in the mediocre year of 2011. The good news is that almost every Austrian province was able to exploit the improved economic climate to boost economic growth considerably.

"Fortunately, every Austrian province managed to generate high economic growth in 2011. That said, the pace of developments in the second half of the year slowed down, especially in the federal provinces with a high export and industry focus, whereby the given mix of sectors was crucial in terms of how severe the adverse impact was", explained Dieter Hengl, Director for Corporate & Investment Banking at Bank Austria. "Similarly to the previous year, Styria was able to exploit its strong focus on the booming car-making industry in 2011 as well, growing by 3.9 percent to become Austria's fastest growing province, followed by Upper Austria and Burgenland. Carinthia only managed to produce growth of two percent, which meant it finished in last place of all the provinces", said Dieter Hengl, summarising the results of the study. In light of the uncertainty caused by the euro crisis, the tighter fiscal policies across Europe and the weaker support expected from exports, the outlooks for 2012 are much more subdued than in the previous year. This means we can expect the federal provinces in Austria to grow more together this year than apart. Hengl adds: "The impacts of the individual growth factors will be relatively balanced in 2012. Being as broadly based as possible in this politically and economically challenging time is certainly a benefit for the federal provinces in the current year."

Growth drivers in 2011: manufacturing and services
In the first half of 2011 the export-oriented industry heavyweights in the west were in a better position, in comparison to the more services-focused businesses in the east. In the second half of 2011 though the general conditions changed due to the global economic slowdown and the subdued expansion of industry. "The economic development of the federal provinces in the second half of 2011 was strongly influenced by how severely the global contraction in demand affected the given industrial sector. Consequently, Lower Austria or Burgenland, which rely more heavily on consumer-related sectors, did not lose as much industrial momentum as Upper Austria, Tyrol and Vorarlberg for example. As an industrial province, Styria, on top of the growth podium, is a special case. Here, the boom in the vehicle industry throughout the entire year was responsible for the highest industrial growth in Austria of more than 15 percent", explained Bank Austria chief economist Stefan Bruckbauer. Industrial growth in most other federal provinces, by contrast, was at most only half as high. Vienna brought up the rear, generating production growth of 1.5 percent, which at least means it managed to move into the black for the first time since the economic crisis erupted.

Alongside having the "right" mix of industrial sectors, the robust economic growth in industry in 2011 was also facilitated by the strong services sector. Bruckbauer added: "The services sector made a very positive contribution to growth in all federal provinces. In this context, services accounted for varying degrees of GDP in Austria, ranging from almost 60 percent in Upper Austria to 85 percent in Vienna. An upswing was noted particularly in the field of corporate-related services, which are highly dependent on industrial developments. The tourism situation also improved noticeably after some provinces, especially Vienna, enjoyed a very good year. Retail on the other hand experienced a disappointing 2011 on the whole; negative income trends resulted in negative sales growth in real terms in all federal provinces, a trend not helped by the cost cutting in the public sector. Under these circumstances, the services sector in Vienna provided the greatest boost, while services in Salzburg, Burgenland and Tyrol were responsible for more than 60 percent of the overall growth too. Yet this sector was also the main contributor to growth in the traditional industrial provinces of Upper Austria, Vorarlberg and Lower Austria. Only in Carinthia and Styria were developments in the services sector more subdued in 2011, relatively speaking.

Construction industry stabilises
Following the sharp reduction in output in the last two years, some stability has returned to the construction industry. Construction output in Austria for example contracted by just 0.4 percent on average. In 2011 this sector had to cope first and foremost with the decline in public contracts given the tight budgetary situation and the lack of stimulation from the private sector. "Still, the sector managed to make positive contributions to growth in five provinces in 2011. The economies in Tyrol and Salzburg benefited from a noticeable pick-up in construction activity of more than two percent. But the construction industries in Styria, Vorarlberg and Lower Austria managed to support the regional economy with growth of just over one percent too", said Bruckbauer, talking about developments in the construction sector. The Carinthian construction economy exerted a negative influence on the overall trend. The federal capital of Vienna, whose relatively small sector suffered the sharpest decline, and Burgenland, which comparatively has the largest construction sector in Austria, both dragged the overall result down with their construction outputs.

Employment benefits from high growth dynamics
The encouraging growth trends provided a very welcome boost to employment in the Austrian federal provinces. Employment on average rose by 1.8 percent in 2011, and even by 2.3 percent in Vorarlberg, which topped the growth charts. This upwards trend was sustained all through the first quarter of 2012. "2011 was the year of employment records – in eight of the nine federal provinces, new records were attained thanks to the strong employment growth in services and the moderate rises in industry. At the end of the first quarter in 2012, employment in Austria was 1.9 percent higher on average than before the crisis. These mean figures were exceeded particularly easily in Burgenland, Vorarlberg, Tyrol and Salzburg. Only Carinthia has so far failed to reach its pre-crisis level fully", said Bruckbauer, explaining the regional employment trends.

Unemployment in the Austrian provinces improved a great deal until the middle of 2011. Yet in the second half of the year the numbers began to rise again on account of the general malaise in the economy. "Upper Austria recorded the fastest increase in jobless figures relatively speaking – but Upper Austria also has the lowest unemployment rate in Austria at 4.2 percent. Sitting at 9.2 percent, Vienna not only has the highest unemployment rate in Austria but it was also the only federal province not to improve on 2010", added Bruckbauer. For 2012 the economists at Bank Austria assume that the unemployment rate will rise marginally from an average of 6.7 to 6.9 percent in Austria.

Provinces with broadly-based industries to prevail in 2012
Thanks to the fast pace of growth, almost every federal province in Austria was able to compensate for the crisis-induced economic setback by the end of 2011, as expected. "Carinthia is currently the only federal province that is yet to reach its pre-crisis level completely, influenced as it is by a sharp decline in construction and the setback in industry. The "winner" in this respect is Burgenland: its comparatively mild decline coupled with the surprisingly high growth mean that Burgenland has come out of the crisis in the best position of all the federal provinces", said Hengl. In spite of the gentle tailwind from the global economy, the expansion of industry in 2012 with its strong focus on exports will come in at roughly 2 percent, clearly down on the growth recorded in the previous year. In 2012 both manufacturing and services will make a more balanced contribution to growth than in previous years, which means in contrast to 2010 and 2011 the large industrial provinces will barely be able to exploit their structural advantages in the current year. "Nonetheless, Upper Austria, Styria and Vorarlberg will generate the strongest growth in 2012. Tyrol and Burgenland with their mix of industries and above all strong services sectors are also well equipped to put in a performance in 2012 that will be slightly above the average", revealed Hengl, looking ahead to this year's growth prospects. Vienna, Lower Austria and Salzburg have broadly-based industries, which gives them a good chance to mirror the average Austrian growth rate of 0.8 percent.

Enquiries: Bank Austria Press Office Austria
 Julia Wegenstein, Tel. +43 (0) 50505 - 52854
 E-Mail: julia.wegenstein@unicreditgroup.at

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