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Bank Austria Business Indicator:
Austrian economy to stagnate in the months ahead

  • Bank Austria Business Indicator slides into negative territory in July for the first time since the beginning of 2012
  • Domestic economy set to stagnate in the third quarter – chances of a slight upswing towards the end of 2012
  • Thanks to a good first half of the year, economic growth will come in at around 1 per cent in 2012
  • GDP growth of 1.5 per cent still expected for 2013
  • The harsh conditions in Europe will take more of a toll on the labour market in the coming months – unemployment will rise to at least 7.1 per cent in 2012, with little chance of relief in 2013

Following satisfactory development in the first half of 2012 in light of the difficult international environment, the domestic economy will face even harsher conditions in the coming months. “The Bank Austria Business Indicator dropped again in July following the decline in June, and for the first time this year, it is sending negative signals. The decrease to -0.1 points underlines the fact that the domestic economy will continue to lose momentum in the coming months,” explained Stefan Bruckbauer, chief economist at Bank Austria. After remaining highly competitive in the first half of the year despite the very difficult economic conditions in Europe, the domestic economy will feel the effects of the escalation of the recession in some European countries in the coming months.

“While GDP grew by 0.2 per cent compared to the previous quarter in the second quarter of 2012, the current Bank Austria Business Indicator clearly shows that it is very likely that the Austrian economy will be derailed from its growth path in the coming months,” said Bank Austria economist Walter Pudschedl. Another deterioration of sentiment in Austrian industry is the reason for the renewed decline in the indicator, while a stabilisation – albeit at a low level – is currently being seen in most European countries. However, the Austrian export economy will face very unfavourable conditions in the coming months, as foreign demand will weaken considerably. At the same time, though, import demand will lessen, which will mean a slightly positive contribution from foreign trade. Nevertheless, Austrian companies are expected to rein in their investments even further in light of the reserved outlook. Confidence among Austrian consumers has also declined. The uncertainty caused by the euro crisis is taking its toll on sentiment, and on top of that, the situation on the labour market is starting to worsen, which means that private consumption will suffer in the coming months. “Overall, we expect the Austrian economy to stagnate in the third quarter. We are likely to see the weakest development of the year in the months of July to September,” said Pudschedl.

The economists at Bank Austria see plenty of room for improvement in the final quarter of 2012, in part because the latest data releases have confirmed once again that expectations are much worse than the actual economic situation. “Assuming that policymakers succeed in improving the markets’ confidence in the Eurozone by taking further steps to resolve the euro crisis, the recession in the peripheral countries will become more mild and sentiment in the other countries will rise again. Then in the fourth quarter, we expect a slight increase in GDP growth by 0.1 per cent compared to the previous quarter and, following the good start to the year, economic growth for 2012 as a whole should come in at around 1 per cent,” said Bruckbauer. According to the economists at Bank Austria, the growth outlook for the Austrian economy remains unchanged at 1.5 per cent for 2013. However, there is still high potential for setbacks due to the naturally very complex situation in the Eurozone.

Labour market under pressure
The upcoming stagnation of the Austrian economy in the second half of the year will not leave the domestic labour market unscathed. The 1.4 per cent employment growth in annual comparison in the first seven months of the year is already starting to weaken noticeably, and unemployment is clearly on the rise. “An average of 17,000 more people will be affected by unemployment this year than were last year. We now expect the unemployment rate to rise to 7.1 per cent following 6.7 per cent in 2011,” said Bruckbauer. The economic recovery expected by the economists at Bank Austria for 2013 is likely to be too weak to noticeably ease the situation on the labour market. The unemployment rate is also forecast to be 7.1 per cent in 2013.

 charts (PDF; 115 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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