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Bank Austria Business Indicator:
Austrian Economy on Moderate Growth Course

  • Bank Austria Business Indicator for March rises for third time in a row to 0.4 points, confirming the Austrian economy’s bright growth prospects
  • Improved conditions for domestic demand make up for higher export risks
  • Outlook: Stable growth until summer followed by chances of an upswing – Austria could achieve GDP growth of 0.8 percent in 2012 and 2 percent in 2013
  • Turn-around on the labour market imminent; annual average unemployment rate currently expected to rise to 6.9 percent

Just like the weather, the economic climate in Austria is changeable at the moment, but the outlook is becoming brighter all the time. "In March the Bank Austria Business Indicator rose for the third time in a row to 0.4 points. After a six month period during which the indicator weakened, the sustained upward trend confirms our expectation of a slow economic recovery in Austria", said Bank Austria’s chief economist Stefan Bruckbauer. The improvement in the economic climate since the start of 2012 has taken place only gradually. "However, the steady, although modest improvement in the Bank Austria Business Indicator in recent months shows that the recovery is hesitant and remains fragile", said Bruckbauer in his analysis.

The economic climate in Austria is currently characterised by significant swings in sentiment. Despite poorer labour market data, consumer confidence continued to rise in March, reaching its highest level in six months. In contrast, the prospects for Austrian industry have become somewhat gloomier although they remain better than the long-term average. The deterioration of sentiment in the Austrian manufacturing sector is largely attributable to a less favourable European environment, which in turn is largely due to a decline in confidence in German industry. "Given the changeable sentiment in industry and among consumers, the positive but weak economic growth witnessed in the first quarter of 2012 will not be followed by a dynamic upturn in the second quarter. According to our estimates, the Austrian economy grew by just 0.1 percent at the beginning of the year compared to the previous quarter, but in the second quarter GDP growth will increase only marginally to 0.2 percent compared to the previous quarter", said Bruckbauer.

"Despite the fragility of the upturn and the somewhat disappointing economic signals from the USA and China in recent weeks, we see good prospects for higher growth rates in the second half of 2012", said Bruckbauer. Given the current substantial order backlog and the solid development of incoming orders for Austrian industry, the momentum from abroad should provide sufficient support. A brief renewed flare-up of the European sovereign debt crisis leading to temporary negative effects – as witnessed in the past few days - has already been factored into this cautiously optimistic economic scenario. "We are upholding our forecast of 0.8 percent growth for 2012 compared to the previous year and if the global economy stabilises even see upside potential for the Austrian economy", said Bruckbauer optimistically.

Declining Inflation Leads to Real Wage Growth
While the risks relating to the expected development of the export sector in 2012 have diminished somewhat in recent weeks, the upward potential of domestic demand has increased. The most recent retail sales figures show that the outlook for private consumption has brightened somewhat. The government reform package to reduce the budget deficit can be managed without any major declines in growth and is supported by the ECB’s policy of increasing liquidity and low interest rates. The Austrian savings rate is expected to decline slightly in 2012 after having already fallen from 8.3 to 7.5 in 2011. "The falling rate of inflation is having a positive impact on private consumption in 2012. This pleasing development reduced inflation in the first quarter to an estimated 2.5 percent after an average of 3.3 percent in 2011, leading to real wage growth in Austria", said Bank Austria economist Walter Pudschedl.

Turnaround on the Labour Market Imminent
Current developments on the Austrian labour market also have the potential to provide support for domestic demand. Signs of stability are starting to emerge following the deterioration that set in after the middle of 2011 as a result of the global economic downturn. Employment growth has now consolidated at a lower level and according to seasonally adjusted data the number of unemployed even fell slightly in March compared to the previous month. The seasonally adjusted unemployment rate stabilised at 6.9 percent at the end of the quarter, and actually fell if those in training courses are included. "It is still too early to tell whether the stabilisation of the situation on the Austrian labour market that became apparent in early spring marks the start of a positive trend reversal. We expect that the economy will continue to stabilise in the next few months and that this will lead to an improvement on the labour market. This trend also has the potential to set in earlier and could turn out to be stronger than we had anticipated", said Pudschedl. Against a backdrop of subdued economic growth, Bank Austria still expects the unemployment rate to rise to an annual average of 6.9 percent in 2012, after 6.7 percent in the previous year.

According to the Bank Austria economists the biggest threats to economic recovery would be a failure to consistently continue reforms in the euro zone countries and a conflict about ECB policy. "While industry and consumers are willing to increase their economic activities again, economic policy remains the chief factor of uncertainty.    The adopted policy of budget consolidation must be continued with a sense of perspective and the backing of monetary policy", Bruckbauer concluded.

 charts (PDF; 105 KB)

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

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