14.02.2013

Bank Austria Business Indicator:
Things are improving, but only slowly

  • Bank Austria Business Indicator climbs to minus 0.2 points in January, reaching the level from summer 2012
  • Decline in the fourth quarter of 2012 is old news: Austria's economy growing moderately again in the first quarter
  • Economic growth in 2013 to be slightly higher than last year at 0.9 per cent thanks to gradual recovery of investment activity
  • Inflation will not decline noticeably until early summer – after which consumption will provide more support for growth

Conditions in the Austrian economy have improved further since the beginning of the year. "The Bank Austria Business Indicator climbed to minus 0.2 points in January. After the poor development in the autumn, this puts the indicator back where it was last summer, during which the Austrian economy expanded moderately," Bank Austria chief economist Stefan Bruckbauer said. Sentiment in the domestic economy has turned, and is signalling that the economy has already passed its low point. "We must not let ourselves be fooled by the poor, downward trending economic data that are currently being published. The worsening of the recession in Europe and the GDP decline in Austria in the fourth quarter of 2012 are old news. The Austrian economy has already begun expanding, at least in small steps," said Bruckbauer optimistically.

The rise of the Bank Austria Business Indicator accelerated noticeably in January. However, the current trend does not apply to all index components. While industrial sentiment remains cautious in individual countries of the Eurozone such as France, Italy and Spain, confidence has increased since the beginning of the year in Europe as a whole as well as globally. This is making highly export-oriented Austrian manufacturers optimistic about their business prospects for the coming months. Domestic consumer confidence has also been improving steadily since the beginning of the year. "The soft leading indicators like producer and consumer sentiment are rising in Austria, and we will see the hard economic indicators follow in the next months," said Bank Austria economist Walter Pudschedl.

After the negative growth in the final quarter of 2012, the economists at Bank Austria are expecting the Austrian economy to expand again already in the first quarter of 2013. But the upswing is getting off to a slow start, and GDP is only projected to grow by 0.1 per cent in quarter-on-quarter terms in the first three months of the year. "The pace of recovery will remain slow for the time being, but will definitely pick up over the course of the year, possibly in the second quarter already. Economic growth for 2013 as a whole is expected to rise to 0.9 per cent, after the estimated 0.7 per cent achieved last year," Pudschedl predicted. The global recovery and the improved economic conditions in Europe will boost demand for Austrian goods this year, even though net exports will only make a small contribution to growth. Investments will be a major source of support for the upswing in 2013. Investments that have been postponed for some time will be made in the coming months after uncertainty in connection with the euro crisis has abated and companies are now again more actively seeking business opportunities. Private consumption will also become an important driver of growth as the year progresses. The poor conditions on the labour market are currently having a hampering effect, but the second half of the year could bring the turnaround if the economy gets more support. However, we expect the jobless rate to rise to 7.3 per cent on average for 2013.

Inflation to remain well above 2 per cent in the first quarter
After inflation averaged 2.4 per cent in 2012 and peaked at an annualised 2.8 per cent at the end of the year, inflation will remain above the 2012 average in the first quarter despite the beginning downward trend. Starting in the second quarter, a basis effect from the development of the crude oil price will cause inflation to fall more rapidly, in part because the very moderate pace of economic growth is not expected to bring any demand-driven price effects. "After only falling slowly in the first months of the year, we expect inflation to drop to under 2 per cent in the second half of 2013 – which will boost consumption and help the overall development of the economy. We expect an average inflation rate of 2.2 per cent for 2013 as a whole," Bruckbauer said.

 charts (PDF; 107 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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