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14.11.2012

Bank Austria Business Indicator:
Economy still weak – waiting for a spring awakening

  • Bank Austria Business Indicator confirms persistent economic slump in October, but a slight improvement by 0.4 points to minus 0.8 points signals economic stabilisation
  • Consumer sentiment has improved, industry remains sceptical in light of growing economic concerns
  • Economic low delayed: slight GDP decline expected in the fourth quarter, resulting in economic growth of less than 1 per cent this year
  • Outlook: tentative heating up of the economy after the winter will lead to somewhat higher GDP growth of 1.2 per cent in 2013

The dark clouds on the horizon for Austria's business activity are showing no signs of clearing out. "The Bank Austria Business Indicator remains in negative territory in October, which signals a sustained slump in the Austrian economy. However, the increase by 0.4 points compared to the previous month to the current level of minus 0.8 points shows that a slight improvement lies ahead in the coming months," said Stefan Bruckbauer, chief economist at Bank Austria. Despite the difficult international conditions, the economists at Bank Austria expect the latest improvement in the indicator to continue in the months ahead. This would mean that as the situation stabilises in Europe, there will be a chance for a tentative spring awakening at the beginning of the new year.

The decisive factor in the moderate increase of the Bank Austria Business Indicator was the slight improvement in sentiment among Austrian consumers. "Relatively stable development on the labour market and signs of a solution to the euro crisis put Austrian consumers in a more optimistic mood in October. Austrian manufacturing companies, however, are somewhat more sceptical when it comes to business prospects in light of the current conditions in the European industrial sector," argued Walter Pudschedl, an economist at Bank Austria.

"Although the Austrian economy deteriorated further in the third quarter, this did not lead to a decline in GDP. We expect that economic output stagnated during the summer months," continued Pudschedl. Thanks to the relatively favourable real data, the Austrian economy did not slide into negative territory from July to September. Industry is showing stable production, and exports have grown slightly. The construction industry also saw positive development in the third quarter. The declines in retail sales, however, indicate very limited domestic demand during the summer.

GDP expected to decline in the fourth quarter
According to the economists at Bank Austria, the economic low originally expected in the summer months has been delayed to the fourth quarter of 2012. The economic climate will not see any more improvements before the end of the year. The decreased order intake and the negative conditions abroad will lead to a decline in production for Austrian industry in the final quarter of 2012, which will also be felt in exports. The unfavourable data regarding the Austrian labour market will increasingly take a toll on domestic demand. "Towards the end of 2012, domestic and foreign demand will come under even more pressure. In the final quarter of the year, we are therefore expecting a slight decline in GDP by 0.1 per cent compared to the previous quarter. Thanks to the good start to the year, however, we anticipate 0.9 per cent economic growth for 2012 as a whole. But that is still less than we had forecast a few months ago," said Bruckbauer in his analysis.

The assessment of economic development by the economists at Bank Austria remains unchanged: After the economic cycle has hit bottom, a moderate improvement will set in next year. According to the economists at Bank Austria, the euro crisis will take a back seat as a risk scenario for economic development. Instead, attention will increasingly turn towards the more subdued level of demand coming from the emerging markets and towards the debt problem in other developed countries outside of Europe, which will result in a restrictive budget policy over the long term. These factors will play an essential role in the just sluggish economic rebound in the coming year. "The lack of agreement regarding the budget in the US and the resulting risk of a fiscal cliff represent the world's biggest potential threat to further economic development – and thus also to economic development in Austria. However, we expect a compromise to ultimately be reached so that the moderate economic upswing in the US will not be endangered. We are maintaining our economic forecast for Austria of 1.2 per cent growth in 2013, which is slightly higher than for this year," concluded Bruckbauer.

 charts (PDF; 46 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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