15.10.2013

Bank Austria Business Indicator:
Economy recovering in small steps

  • Bank Austria Business Indicator continues to rise in September: modest increase to 0.6 points (August: 0.4 points)
  • Constant and all-round improvement in Austria's economic climate
  • Foreign trade ensured rise in economic growth to 0.4 percent in Q3, compared to the previous quarter
  • Broader support from consumption and investments will boost momentum in the coming months; GDP growth of 1.8 percent expected for 2014 after 0.4 percent in 2013
  • Temporary uncertainty only from US debt cliff, diminishing need for consolidation in Europe to support economy in the medium term
  • Economic recovery slow to reach labour market: unemployment rising to 7.6 percent in 2013 – decline not likely in 2014

The recovery in the Austrian economy is gradually taking root. "In September the Bank Austria Business Indicator continued its upward trend and reached 0.6 points", said Bank Austria's chief economist Stefan Bruckbauer, adding: "In the last two months our indicator has improved similarly to the summer of 2009, when the Austrian economy managed to overcome the deepest recession in post-war history. Consequently, we assume that the Austrian economy will really pick up some momentum in the second half of 2013."

After recording minimal GDP growth in the first half of the year compared to the respective previous quarters, Bank Austria's economists have calculated that growth in the recent quarter from July to September was much faster. "In the third quarter of 2013, the recovery of the European economy spilled over into Austria. We reckon that GDP rose by a projected 0.4 percent compared to the previous quarter. This would make it the highest rate of growth since early 2012", revealed Bank Austria economist Walter Pudschedl. Foreign trade in particular was instrumental in the pick-up of economic activity, where it was not so much the budding export growth that was beneficial as the slow imports. Moreover, the improved climate had positive effects on domestic demand. Private consumption in particular was back in black at the start of the autumn for the first time in six quarters.

Austrian manufacturers optimistic about stabilised economic situation in Europe
The gradual but sustained improvement in the economic climate promises a stable continuation in the economic recovery over the coming months. "Economic sentiment in Austria is consolidating slowly just now, but on a broad scale. Both Austrian manufacturers and consumers have been a touch more confident for the third month in a row", said Pudschedl. The stability in Europe's economic position is clearly having positive effects on the optimism of Austrian manufacturers. In the wake of the brighter climate in practically every country around Europe, the mood in Austrian industry is as good as it has been for 15 months in view of the order books that are slowly filling up again. The sentiment among Austrian consumers has improved more slowly in recent weeks because of the adverse developments on the labour market, and for the time being is still well below its long-term average.

2013 inflation forecast: 1.9 percent – no change in ECB interest policy expected
"This last quarter of 2013 promises to produce livelier economic growth in Austria with GDP growth of 0.6 percent compared to the previous quarter, since alongside exports, economic growth is now also receiving more support from domestic demand", said Bruckbauer, convincingly. The continued fall in inflation is helping private consumption to pick up pace. The subdued trends in commodity prices, including crude oil, will push inflation in Austria down below the 1.5 percent yoy mark by the end of 2013. With the readings being higher in the first half of the year, the economists at Bank Austria expect to see inflation averaging out at 1.9 percent in 2013. This moderate level of price growth still gives the European Central Bank no reason to change its interest policy. The improved prospects and the persistently low interest environment characterised by the all-time low in new loan interest rates offered to corporate customers in Austria, which are much lower than in most countries of Europe, will gradually stimulate the investment activity of Austrian business-owners in the coming months.

1.8 percent economic growth expected in 2014
The year 2014 will put growth in the Austrian economy onto a more balanced footing. "After modest GDP growth in 2013 of just 0.4 percent, we are forecasting more robust expansion for Austria in 2014 of 1.8 percent. The monetary environment is still positive – no increases in key interest rates are anticipated for 2014 – and this will be backed by the sharp reduction in the need for consolidation in Europe", summarised Bruckbauer. Budget policy is expected to have a neutral impact on the eurozone in the coming year on average. In 2013 the estimated reduction in the structural deficit by 0.8 percentage points in total still had a tangible negative impact on demand. Worldwide we expect somewhat stronger growth in 2014 than in 2013 thanks to solid expansion in the emerging markets. The USA should be able to contribute to this trend as well. Although the USA reaching its debt ceiling in the second half of October 2013 does potentially represent a high economic risk for the global recovery, we expect the conflict will be resolved in good time. The debt ceiling of USD 16.7 trillion will need to be raised by roughly USD 1.1 trillion in order to finance the whole of 2014 and avoid any negative impacts on the global economy and the recovery in Europe and Austria. Bank Austria's economists believe that many are currently underestimating the dangers that a technical insolvency in the USA lasting even a couple of days would cause. US government bonds are still considered to be the safest investment instrument in the world, which is why most currency reserves are invested in US government bonds. Even a temporary increase in the limit for a few weeks or months would constitute an economic risk for the global economy and Europe. "In light of the disaster that even a technical insolvency in the USA would cause, we are banking on a solution being reached at the eleventh hour, or just after" said Bruckbauer, adding: "A temporary increase in the limit would at the very least hamper the economic recovery in the eurozone." Bank Austria's economists basically assume that the current budget consolidation in the USA will weaken growth trends, and the USA will remain below its potential not only in 2013, expanding by 1.6 percent, but also in 2014 with 2.4 percent. The eurozone, by contrast, has already consolidated its budgets.

Unemployment peaking
The budding recovery has yet to arrive on the Austrian labour market. What is more, the economists at Bank Austria believe unemployment will rise further over the coming months. We anticipate an annual average unemployment rate for 2013 of 7.6 percent. This will be the highest reading in recent Austrian history, and considerably more than during the crisis year of 2009", said Bruckbauer. Positive signals are expected in some areas in the coming months, such as certain industrial sectors for example, but the inadequate pace of the recovery means that a turnaround on the labour market is only anticipated from 2014. "We assume that the average rate of unemployment in Austria in 2014 will remain at 7.6 percent. This means, for the first time, that more than 290,000 people will be looking for a job in Austria (or more than 360,000 including those in training)", said Bruckbauer, outlining a not-so-optimistic view of the Austrian labour market. By European comparison, however, Austria will still have one of the lowest unemployment rates in Europe with 4.9 percent according to the Eurostat definition.

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