Bank Austria Business Indicator:
Slight dip in consumer sentiment tempers economic climate
- Bank Austria Business Indicator slides back slightly into negative range in June
- Consumer confidence dwindles somewhat but remains significantly above Eurozone average
- However, 2013 is likely to see consumer growth stall for the first time since 1997
- Sentiment in key export markets improves, particularly in Europe
- General situation for 2014 considerably better
- Industrialised countries are set to contribute more to the acceleration of global economic growth in 2014 than emerging markets for the first time since 2009
"While the sentiment in European industry has improved to some extent, the slight drop in consumer sentiment is weighing on the Austrian economic climate as we reach the mid-point of the year. The Bank Austria Business Indicator reflects this, and slipped back into negative range in June", said Bank Austria’s chief economist Stefan Bruckbauer, summarising the current economic mood in Austria.
"Industrial sentiment in almost all of the Eurozone’s key export markets in June 2013 was much higher than one year ago. However, Austria’s industry and consumers are unfortunately more cautious", Bruckbauer believed. Although Austrian industrial and consumer sentiment has recovered from its latest slump in the wake of the Greece crisis, the short-term dip in the first half of 2013 was more pronounced and is lasting longer than in many other countries.
Austria’s exports rose once again during the first four months of the year, albeit by only 1.7 per cent. Imports, on the other hand, were down 3.3 per cent year-on-year. Consumer confidence, too, which sparked the downward movement in the Bank Austria Business Indicator has also failed to improve over recent months, in contrast to the trend in many other European countries, and has even worsened slightly. Nevertheless, Austrian confidence is still higher than the Eurozone average.
In the second quarter, Austria’s consumers, while not regarding their current situation as any worse than during the first quarter, nevertheless assessed their future prospects somewhat more negatively. However, the dip in sentiment has had a less drastic impact than, for example, in autumn 2012 or even 2009. It can therefore be expected that improved economic growth in the Eurozone and the resulting positive effect on Austria will help lift this pessimistic mood as the second half of the year progresses. Nevertheless, weak consumer spending is curbing economic growth in Austria. Despite a slight upturn in the second half of the year, Bank Austria’s economists are predicting that, for the first time since 1997, real consumption in Austria will stagnate in 2013.
Inflation and, in particular, the fear of unemployment help shape consumer sentiment. "Inflation should continue to fall in the second half of the year to under 2 per cent, helping to improve the consumer climate in Austria", said Bank Austria economist Walter Pudschedl, assessing the situation. In terms of the second major influence on consumer sentiment, the labour market, Bank Austria’s economists see any noticeable relief in the form of a trend shift in unemployment and a slight acceleration in the employment rate as unlikely before 2014 at the earliest.
According to Bank Austria’s economists, sentiment across the Eurozone should see further improvement over the next few months, too. After another expected fall in economic output in the second quarter just gone, the Eurozone is likely to return to growth more or less immediately in the third quarter, a trend that will continue in 2014. After shrinking 0.6 per cent in 2013, the Eurozone is set to grow 1.0 per cent in 2014. Strong growth is also expected for the USA in 2014, after the curbing effects of the stringent budgetary consolidation measures introduced in 2013 have attenuated. Growth is expected to hit 2.6 per cent following 2013’s figure of 1.8 per cent. "For 2014, we are expecting industrialised countries to contribute more to the acceleration of global economic growth than the emerging markets for the first time since 2009. Although the latter’s growth will outstrip the former’s by a considerable degree in 2014, it will not better its own 2013 figure by any great margin", said Bruckbauer.
Austria’s economy should also see positive growth again during the second half of the year. Although economists believe that the quarter just ended will record growth figures, albeit modest ones, there remains a downside risk due to the effects of weak imports. Bank Austria is sticking with its overall forecast for 2013 of 0.4 per cent growth, while its 2014 forecast of 1.6 per cent also remains unchanged.
The greatest risks threatening a continued economic recovery in Austria currently stem from the global economic trend and, to a lesser extent, from the Eurozone. There undoubtedly remain some risks brought about by political developments in the Eurozone, such as the implementation of the proposed banking union. As the need for severely restrictive fiscal policies recedes, however, the situation will ease. The structural deficit is likely to be around 1.5 per cent, even as early as 2013, which is close to the 0.5 per cent target. This means that budgetary consolidation measures will weigh considerably less on the economy as 2014 goes on. It should also be possible to overcome the risks that an end to the USA’s extremely expansionary monetary policy would have for the Eurozone if the ECB is creative with its monetary policy. Should the slump in growth in the emerging markets turn out more severe than currently expected, however, this could delay the recovery in the Eurozone and, by extension, in Austria too.
charts (PDF; 48 KB)
Enquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel. +43 (0) 50505 - 41957;
E-mail: walter.pudschedl@unicreditgroup.at