Analysis of federal provinces from Bank Austria Economics:
Federal provinces continuing to withstand international headwind

  • Burgenland the top federal province in 2012, followed by Tyrol, Styria and Vorarlberg
  • Growth slowed across all federal provinces in 2012, although economic output is back well above pre-crisis levels in nearly all provinces
  • For the time being, export-oriented industrial provinces have lost their structural advantage from the post-crisis recovery phase – although industry is still providing key momentum
  • 2012 was the year of record employment, although joblessness is now on the rise
  • Outlook for 2013: growth to be more evenly spread among the federal provinces – industrial heavyweights such as Upper Austria, Vorarlberg and Styria to enjoy a slim lead

Whereas early 2012 saw respectable growth, as the year progressed the global economic slowdown, the euro crisis, cuts and a Europe-wide recession contrived to take the wind out of Austria’s economic sails. Economic momentum was thus noticeably weaker in 2012 than in 2011 across all federal provinces. Over the past few years, provinces with a solid, export-oriented industry sector have benefited from a strong recovery. The downturn in industrial activity left these federal provinces with only slim advantages last year, which they were primarily able to exploit over the first six months. Having a strong focus on services thus did not prove much of a disadvantage in 2012. Aside from this basic pattern, the individual strengths of certain federal provinces permitted some strong performances. This is one of the main findings from the latest analysis of the federal provinces by Bank Austria's economists. The other: The Austrian economy still grew by 0.8 per cent on average in 2012 (2011: 2.7 per cent). In other words, economic output in nearly all federal provinces is in some cases once again well above the levels recorded before the crisis of 2008/2009.

Burgenland sees 2012's fastest growth
"Neither the industrial provinces nor those with strong service sectors were able to exploit any key structural advantages in 2012. Instead, what counted was having a broad base across many sectors. This benefited Burgenland, for one, which emerged on top in the growth stakes with an estimated 1.6 per cent increase in economic output in 2012. Tyrol, however, also emerged with a smile on its face, with economic output up by 1.4 per cent," remarked Dieter Hengl, Head of Corporate & Investment Banking, summarising the main findings of the analysis of federal provinces from Bank Austria Economics. He added: "Styria and Vorarlberg, too, were able to achieve growth just above the Austrian average with fairly diverse individual strengths. However, the particularly challenging conditions in the south of the country resulted in a less positive trend there. Carinthia's economy was on the verge of stagnation in 2012."

Fall in demand for exports curbs industrial activity
The role played by exports meant that global economic downturn had a marked knock-on effect on the Austrian economy in 2012. In nominal terms, they grew by a mere 1.4 per cent on average over the year (2011: +11.3 per cent). Austria's industry, which is responsible for some 70 per cent of the country's exports, was hit by weak demand from abroad. Nevertheless, industrial activity (excluding construction) expanded by a respectable 1.8 per cent overall in real terms thanks to dynamic growth in the energy and water supply and waste disposal sectors. However, manufacturing output, i.e. industrial activity excluding the supply sectors, grew by only 0.3 per cent in 2012 (2011: +6.7 per cent). Stefan Bruckbauer, Chief Economist at Bank Austria, analysed the key industry trends thus: "Developments varied significantly among the individual sectors in 2012, and growth was uneven. Mechanical engineering was one of the main growth drivers for Austria's industry – expanding by some 4 per cent and contributing over 10 per cent of the entire manufacturing industry's value added. Metal products and glassware manufacture and the chemical and pharmaceutical industry also upped their output in 2012, while industries such as steelmaking, vehicle manufacture, electronics and, at a regional level, timber were hit by significant losses in some cases."

Burgenland the top industrial province – followed by Tyrol and Styria
Burgenland's industry proved the surprising front-runner in this environment, boosting its output by over 8 per cent. This rise was driven by the mechanical engineering, metalworking, plastics processing and food production industries. In some cases, however, companies relocating from other federal provinces also had a hand in this rapid growth. Including the supply sectors, industrial activity also performed well in Tyrol (+5.9 per cent) and, despite a tough time for vehicle construction, also in Styria (+3.3 per cent). Vorarlberg's manufacturing industry also enjoyed above-average growth in 2012, while Carinthia (+1.3 per cent), Upper Austria (+1.2 per cent) - curbed by a slump in steelmaking - and Lower Austria (+0.3 per cent) saw slower rates of growth. With Vienna's manufacturing industry flatlining, this meant that only Salzburg failed to match the level of the previous year.

Construction industry provides momentum – most notably in Styria
The construction industry made a substantial positive contribution to economic growth in 2012, with the construction output index increasing by 1.7 per cent on average. In Styria in particular, the sector contributed significant momentum. In all federal provinces except Salzburg and Carinthia, the construction industry recorded considerable growth in some cases, although it did tail off as the year progressed. Generally, this was driven by public investment in civil engineering. Structural engineering, on the other hand, remained under pressure across the board with many companies reluctant to make investments, although Vorarlberg, Tyrol and Styria did see some growth.

Moderate growth in the service sector
"With the situation on the labour market deteriorating as the year went on, the service sector provided less and less momentum," emphasised Bruckbauer. "Due to its size relative to the rest of the economy, however, it was still the main growth driver for the Austrian economy in 2012." The tourism industry performed especially well, with Vienna in particular seeing another sharp rise in overnight stays. There was also an expansion in business support services such as IT and freelance activities. However, the trend in the retail industry was unfavourable once again in all federal provinces, despite rising levels of employment. Whilst the situation in Vorarlberg remained relatively positive, underpinned by purchasing power from Switzerland, Carinthia was the only federal province to also see a fall in nominal sales. The service sector, which contributes between 60 per cent (Upper Austria) and 83 per cent (Vienna) to the individual federal provinces' value added, proved the decisive driver of growth in all provinces – which was strongest in Burgenland and Salzburg, and relatively modest in Carinthia and Upper Austria.

Labour market under increasing pressure in all federal provinces
Employment increased by a respectable 1.3 per cent on average, and by as much as 2.3 per cent in Burgenland, which came out on top. "2012 became the year of record employment levels," said Hengl. "Eight out of the nine federal provinces saw the number of people employed reach a new record level thanks to a sharp rise in employment in the service sector and a moderate one in industry." Nevertheless, the upward trend in employment levels ebbed significantly over the course of the year as the economic slowdown took hold. Joblessness rose in most Austrian provinces in 2012, particularly in the second half of the year. Upper Austria experienced the sharpest increase in unemployment figures in relative terms in 2012, although it continues to have Austria's lowest unemployment rate – 4.5 per cent as an annual average. Vienna still has the highest level of unemployment in the country, at 9.5 per cent. Only in Tyrol and Vorarlberg did the unemployment rate not increase over the year as a whole. The unemployment rate is expected to rise in all federal provinces in 2013, leading to an increase for the whole of Austria from an average of 7.0 per cent to 7.3 per cent.

Broad-based growth in 2013
"Industry will remain a key pillar of growth in 2013, even though growth will be very modest at around 1 per cent. The shift in the focus of demand from intermediate services and capital goods to consumer goods will accelerate. The service sector will come under heavy pressure in 2013 with rising unemployment and weak growth in employment levels and expansion will be slow at best," said Hengl, analysing the prospects for growth this year. "Over the course of the year, however, faster growth should be possible, boosting those federal provinces that specialise in services, such as Vienna, in the second half." With momentum no more than modest in all sectors, there will be little difference between the growth rates of the different federal provinces in 2013. In these conditions, the best-placed provinces are those with a broad-based industrial sector, which would favour Vorarlberg, Upper Austria and Tyrol. However, Burgenland looks set to retain its lead in Austria's growth stakes due to one-off factors. Although Salzburg is expected to prop up the growth table, the gap between top and bottom will narrow this year. "For 2013 as a whole, we are still predicting 0.9 per cent growth for the Austrian economy, as our forecast takes account of a weak start to the year, albeit admittedly not quite as weak a start as looks likely at present. Although prospects have worsened significantly over the past few weeks, it is still too early to abandon hope of an upturn in 2013", stressed Bruckbauer.

 charts (PDF; 41 KB)

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The Bank Austria publication "Bundesländer Überblick" ("Overview of the Austrian Federal Provinces") provides a detailed analysis of economic development in Austria's federal provinces and looks ahead to 2013. The brochure can  here be downloaded free of charge.