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Bank Austria Business Indicator:
Economic stability in sight – 2013 to bring additional growth

  • Trends seem to have bottomed out: Bank Austria Business Indicator rises marginally again in November to -0.8 points
  • Industrial sentiment in Europe on road to recovery; consumer expectations stable moving into New Year
  • Moderate rise in economic growth: after 0.5 percent in 2012, figure of 0.9 percent anticipated for 2013 due to growing export demand
  • Long-term outlook: if domestic demand picks up, increase of 1.5 percent on the cards for 2014
  • Inflation to drop in 2013 to annual average of 2.2 percent

Signs of stability have surfaced in business trends throughout industry in the last few weeks, and this is now starting to have a positive impact on the overall economy. "The Bank Austria Business Indicator improved again in November after the minor increase in the previous month. Although the indicator still lingers way below the long-term average at -0.8 points, the latest developments support our view that we are past the worst of the current economic cycle", said Bank Austria chief economist Stefan Bruckbauer. What is more, the latest figures have significantly improved the outlook for a brighter economic climate in the coming months.

The cautiously optimistic assessment of the economists at Bank Austria is based on the initial signs of an improvement in the mood of European industry. The indicator weighted with Austrian foreign trade rose slightly in November. Looking forward this should have a benign impact on the business prospects of Austrian industry, which are still very subdued, and soon be reflected in the real figures. Posting a strong increase in November, Bank Austria's Purchasing Managers' Index has already served notice of the development expected by the economists. Although the situation remains tense on the labour market, the confidence of Austrian consumers stabilised in November. The calm returning to the markets after the euro crisis is having a positive impact here. "Sentiment at present among Austrian and international participants in the economy remains muted. Yet with the increasing number of positive signals we expect a more optimistic attitude in general for the start of 2013", said Bank Austria economist Walter Pudschedl.

For the last quarter of 2012 we anticipate a marginal slowdown in economic performance. Austrian industry is faltering given the subdued demand from abroad, which is influenced by the recession in Austria's key trading partners. Yet here too we have identified signs of a change in the trend. Likewise, stability appears to be returning to domestic demand as well – supported by consumer trends that are still sound in the current climate. "The Austrian economy has been stagnating since the summer. That said, slower GDP growth is projected for the year as a whole. For 2012 we predict an expansion in the economy of at least 0.5 percent", said Pudschedl.

Economic activity is likely to be slow to get going in the coming year, but the outlook of a progressive recovery is backed by the latest development in the Bank Austria Business Indicator. The recovery will be driven first and foremost by the improved international climate. Starting from the emerging markets in Asia this upswing should pass through to the European economy too, which will also benefit from a less restrictive budget policy than this year. In Austria, external demand will become one of the main pillars of the upswing, which will noticeably help local industry to grow faster in 2013. But domestic demand should also pick up in the latter part of 2013, supported by the already visible improvement in overall sentiment. Moreover, private consumption will receive a marginal boost from the current wage agreements, which suggest real purchasing power may grow in 2013. However, the continued rise in unemployment does limit any upturn in activity. Despite the favourable financing conditions, investment activity will be slow to get going in 2013, which means any impulses from domestic demand will be very sluggish overall. "For 2013 we anticipate that economic growth will be 0.9 percent higher than in the current year. This will draw on stronger export demand, complemented in 2014 by a pick-up in domestic demand. Consequently, from today's perspective, this means that GDP growth of 1.5 percent is a possibility in 2014", revealed Bruckbauer.

No inflation risk
"Due to the very lethargic economic recovery and the perhaps even marginal increase in unemployment, inflation is expected to dip in the coming year. After averaging out at 2.4 percent in 2012 we expect inflation to come in somewhat lower in 2013 at 2.2 percent", said Bruckbauer. Although food prices will nudge the rate up a little, the risk that the price of crude will unexpectedly drive inflation upwards more strongly is quite low given the rather weak trends in global demand in 2013. It is expected that the price of crude oil, which in 2012 rose to roughly USD 112 per barrel on average, could in fact fall marginally in the coming year. This moderating impact should be supported by a slight appreciation of the euro against the US dollar thanks to the easing of the crisis in Europe. Only in 2014 will the inflation rate fall back below the 2-percent mark again.

 charts (PDF, 44 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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