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Bank Austria Business Indicator:
Start of 2012 brought the economic turnaround

  • Bank Austria Business Indicator climbs out of the red in January
  • Low growth expected in Q1 2012 after stagnation at the end of 2011
  • Austrian economy expanded by 3.3 per cent in 2011, one of the highest rates in the Eurozone
  • Moderate GDP growth of 0.8 per cent in 2012 with slight acceleration over the year
  • Economy will expand by 2 per cent in 2013 despite the austerity package

The signs that the economic slowdown that began in the second half of 2011 is reversing grew stronger over the past weeks. “After stabilising in December of last year, the Bank Austria Business Indicator rose for the first time in more than six months in January. It also came out of the red for the first time in three months,” said Bank Austria’s head economist Stefan Bruckbauer, explaining the current development of the reliable early indicator. “With its rise to a neutral 0.0 points, however, our indicator shows that the Austrian economy has only gained slight momentum since the start of the new year.” This means that we will not likely see a noticeable recovery of the domestic economy in the first months of 2012.

“The improvement in the economic indicator was driven primarily by the moderate brightening of the economic climate in Austria over the course of January. While sentiment in industry has stabilised, consumers are now gaining a little more confidence,” said Bruckbauer. In January, sentiment in Austrian industry stabilised almost exactly at the long-term average, with Austrian companies reporting a somewhat higher level of optimism than the European average. And sentiment among Austria’s consumers even improved somewhat in the first month of the year. It is below the long-term average, but still well above the levels in most other countries in Europe.

The economic data available at present clearly show that the Austrian economy slowed again in the final quarter of 2011, but only to a limited extent. “We expect that the Austrian economy did not slip into negative growth at the end of 2011 as feared, but that it only stagnated in quarter-on-quarter terms. For 2011 as a whole, GDP is projected to have grown by 3.3 per cent,” reported Bank Austria economist Walter Pudschedl. This made Austria one of the fastest growing economies in the Eurozone last year. According to projections by the economists at Bank Austria, the Eurozone economy as a whole contracted by 0.3 per cent in the fourth quarter of 2011 compared with the third quarter. This means economic growth of 1.6 per cent for 2011.

It seems that the fourth quarter of 2011 marked the lowest point of the economic cooldown. Relatively good labour market data and industrial surveys showed an impending turnaround. “Austria’s economy will begin growing again in the first quarter, but only at a very moderate rate. Ailing export demand, very cautious consumers and low investment activity will hamper the economy,” said Pudschedl. Starting in the middle of the year, positive impulses from the Asian emerging economies should boost domestic industry indirectly through Austria’s most important trading partner, Germany, and help accelerate the economy. The delay of investment and consumer decisions will then start diminish. “Despite the resurgence of the economy over the course of the year, economic growth will only be moderate in 2012 in 0.8 per cent. But on the basis of current data, we do not rule out a positive surprise,” said Bruckbauer.

Stronger growth in 2013 despite the austerity package
“We expect GDP to increase to a greater extent, by 2 per cent, in the coming year. The budget consolidation measures will take full effect in 2013, but they will not slow the Austrian economy to any great extent in our opinion. Our initial calculations point to a direct dampening effect of around 0.25 per cent in 2013, but this will be more than offset by the burgeoning global economy,” said Bruckbauer. In addition to the strong recovery of the world economy, from which Austria should profit, additional risk factors for this scenario include the expectation that the European confidence crisis will abate further. Because of the continuing budget consolidation and the increased fiscal discipline throughout Europe, we assume that Austria’s economy will not grow at its full potential in the years after 2013. Growth rates above 2 per cent will be the exception for the medium term.

Low interest rates – no credit crunch
The budget consolidation in Austria will continue to be supported by low interest rates for the time being. “We expect that the key interest rate will still only be 1 per cent at the end of 2012. This means that we also do not expect any rate cuts in 2012. The ECB will maintain its easing bias for now, but will shift to a more positive rhetoric down the road,” said Bruckbauer. Because of the continuing improvement in the financial and macroeconomic conditions, the latest stabilisation of the sentiment indicators and the aggressive unconventional measures being taken by the European Central Bank, the economists at Bank Austria see no danger of a credit crunch that would rob the Austrian economy of its momentum at this time.

 charts (PDF; 100 KB)

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