17.06.2013

Bank Austria Business Indicator:
Austria's economy on the road to recovery

  • Bank Austria Business Indicator leaves the negative territory in May
  • Sentiment improves slightly after the uncertainty over the Cyprus crisis
  • Global signs of an upswing in the second half of the year are increasing, though the economy will grow by a mere 0.4 per cent in 2013
  • GDP growth to rise to 1.6 per cent in 2014 – underpinned by a loosening of the purse strings in Europe
  • Labour market set to ease in 2014

Indications of economic stabilisation in Europe are growing, as is the prospect of a recovery in the Austrian economy. Summarising the situation, Bank Austria's chief economist Stefan Bruckbauer said: "Having left the negative territory in May, the latest Bank Austria Business Indicator supports our optimistic view that Austria will soon see an economic upturn. However, recovery from the economic slump will be fairly slow at first, as shown by the indicator's fairly feeble 0.2 per cent rise to zero, signalling neither growth nor contraction."

"The moderate improvement in the Bank Austria Business Indicator in May stemmed from slightly brighter economic sentiment, which has been improving since late last year, despite occasional ups and downs", said Bruckbauer. Across virtually the whole of Europe – including in Austria – underlying economic sentiment has stabilised and, since late autumn 2012, has begun to rise among both consumers and manufacturers in all countries. Just as in April, uncertainty sparked by the inconclusive results of the Italian elections and the wranglings over the Cyprus crisis as well as questions over the timeline for and structuring of reforms at European level, such as the banking union, has continued to have a negative impact. The latest assessments of sentiment are thus well below the long-term averages across the board.

The Bank Austria Business Indicator's rise in May was only modest, due to an uneven performance by the individual components that make up the indicator. Bank Austria economist Walter Pudschedl commented: "The temporary uncertainty caused by the Cyprus crisis has been overcome, and Austrian consumers regained some of their confidence in May despite tensions on the labour market. On the other hand, sentiment in Austria's industry has fallen slightly once again under pressure from a sluggish order situation." At a European level, however, manufacturers envisage significantly rosier business prospects, with sentiment improving in Austria's key export destinations in particular. This should have a positive impact on Austrian industry over the next few months.

On the back of steadily improving industrial sentiment in Europe and rising purchasing manager indices in nearly all countries, there is now also some real data, such as the recently published figures for European manufacturing output in April, suggesting that the European economy is on the up. The ongoing stabilisation will be followed in summer by a recovery in the Eurozone which, although only modest overall, will benefit a wide range of sectors and regions, headed by Germany. However, global indicators are currently mixed, suggesting that the economic recovery will be no more than moderate: Whilst the most recent labour market data from the USA is promising, indicating continued growth, and the change of course in Japanese economic and monetary policy is boosting the economy, the latest figures from the emerging markets, including China, are disappointing. The weak economic development seen at the start of the year in Austria has continued into the second quarter, which is now coming to an end. "The current international environment is pointing towards an economic recovery for the third quarter of 2013. In the second half of the year, we are looking at growth of around half of one per cent on the previous quarter. After a sluggish start to the year, with the first half of 2013 actually seeing a fall in economic output of an estimated 0.3 per cent year-on-year, the second half of the year will haul GDP growth into positive territory for 2013 as a whole", predicted Pudschedl. Bank Austria’s economists are forecasting economic growth of 0.4 per cent for 2013.

"With GDP growth at 1.6 per cent, we believe the growth prospects in 2014 are significantly brighter than in the current year, as the budgetary consolidation measures in the Eurozone are already well advanced. This means that most of the Eurozone will not require any more growth-stifling austerity packages next year", said Bruckbauer. "Although there remain some areas that could disappoint – most notably in Spain – the Eurozone's structural deficit looks set to be a mere 1.5 per cent on average even in 2013. And, with a Eurozone banking union coming ever closer to fruition, we are also hopeful that the banking market will see a similar boost to that enjoyed by the government bond market when the ECB announced its OMT programme. Although a lending boom is unlikely, given the highly restrictive regulations, there should at least be an easing of the debt reduction measures, which in some cases have been extremely aggressive", Bruckbauer continued. The risks facing the economy are clear: Alongside disappointing global economic growth, they lie primarily in a failure to press ahead with reforms, both at a European level, such as with the banking union, and at a national level.

Trend shift on the labour market in 2014
As things stand, the economic recovery in the second half of 2013 will not be sufficient to ensure that the unwelcome trends of the past few weeks on Austria's labour market will be reversed this year. Following an average of 7 per cent in 2012, the unemployment rate will rise to 7.5 per cent on average, thus exceeding the crisis levels of 2009. Bruckbauer is optimistic: "We believe that we will see a shift in the unemployment trend in 2014, when economic growth will begin to pick up. We are expecting the unemployment rate to fall slightly to 7.4 per cent." Although the negative trend on Austria's labour market is clearly apparent at present, it is nevertheless relatively moderate, particularly compared to other countries. At 4.9 per cent, its seasonally adjusted unemployment rate under the EU method is currently the lowest in the EU.

 tables (PDF; 45 KB)

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