Bank Austria Business Indicator:
Improved environment in Europe strengthens Austrian economy

  • Sound recovery trends despite modest decline in Bank Austria Business Indicator to 0.9 points in December
  • But domestic demand is restraining recovery in short term because current labour market conditions are hampering consumer sentiment
  • Exports and investments really drive growth forward in 2014 Q1 compared to 2013 Q4

After a sluggish start, economic activity picked up pace during 2013. According to estimates by the economists at Bank Austria, the closing quarter produced a marked increase in GDP. The Austrian economy thus started the New Year with much more momentum than twelve months ago. "While the figure achieved in the third quarter was just 0.2, the Bank Austria Business Indicator in the last quarter of 2013 rose to an average of 1.1 points. This indicator correlates to economic growth in the fourth quarter of up to 0.8 percent by annual comparison. This is the highest growth rate of the past year", explained Bank Austria chief economist Stefan Bruckbauer. The recovery in the Austrian economy thus continues to make progress at the turn of the year. However, the pace of the recovery is being held back just now by the subdued domestic economy. "Bank Austria's Business Indicator dropped moderately in December, particularly on account of the hesitant consumer mood. After recording 1.2 points in the previous month it fell to 0.9, but this still points towards a sound recovery of the Austrian economy", said Bruckbauer.

The development of Bank Austria's Business Indicator in December was characterised by opposing trends in the foreign and domestic components. The European industry confidence indicator, which focuses on Austrian export shares, revealed an ongoing upwards trend and is now at its highest level since mid-2011. Business prospects were estimated to be better than in previous months in practically every export country for Austrian industry. In spite of the positive signals from abroad, however, the confidence of Austrian producers has taken a slight knock, but it still remains above the long-term average. "While the improvement in the European climate is driving the recovery of the Austrian economy along, the lack of optimism in the Austrian economy, particularly among Austrian consumers, slowed progress down at the turn of the year. The tense situation on the labour market is still weighing down on sentiment", said Bank Austria economist Walter Pudschedl, explaining the details.

External demand and investment drive economic activity
At the start of 2014 the economists at Bank Austria expect to see another tangible pick-up in pace. The Austrian economy will be able to take this year-end momentum into 2014. GDP in the first quarter of 2014 will rise by up to 0.7 percent compared to the last quarter of 2013. "Two factors are contributing to this growth acceleration for the time being: the strong external demand and the expectation of more investment. Both factors will lift economic growth in 2014 to up to 2 percent. Only in the coming months will consumption come into play as an additional growth pillar", said Pudschedl. Solid growth dynamics in the emerging markets of Asia, and in the USA, coupled with economic growth in the eurozone totalling 1.5 percent are the main impetuses for the Austrian economy after two years of contraction. First of all, the positive influences will transfer to investments in plant and equipment, which have long since been postponed. After a decline of roughly 2.5 percent in 2013, the estimated increase for 2014 is predicted to be up to 8 percent. The internal financing ability as well as the still favourable financing conditions are important supporting factors here.

Private consumption continues to grow, but so do unemployment figures
Over the coming months, the impulses from Europe – such as the fading fiscal constraints – will have an increasingly strong effect on private consumption in Austria. After private consumption contracted last year for the first time since 1997, a modest increase of 0.7 percent is expected again for 2014. While the low inflation is being supportive, the difficult situation on the labour market is hampering the upwards trend. Only later on in the year do we expect to see the start of a slow improvement. All in all, it is anticipated that the jobless rate will increase from an annual average of 7.6 percent in 2013 to 7.8 percent in 2014.

Even stronger growth predicted for 2015
The Austrian economy will grow somewhat faster in 2015 than in 2014. The recovery in the eurozone will pick up pace with GDP growth of 1.8 percent. Austria's significant export markets, first and foremost Italy, but also Germany and France, will generate more demand, and more impetus is expected from the growth markets in Central and Eastern Europe. Investment activity will broaden considerably in 2015 as well amidst such benign conditions, while the prospects for private consumption are better given the labour market expectations. The unemployment rate should fall to 7.5 percent in 2015. "From today's perspective, the improved overall conditions should mean that Austria is set for GDP growth in 2015 of even 2.1 percent, and this will be very balanced", said Bruckbauer.

ECB injects more liquidity in 2014
"In view of the fairly swift recovery we assume that the European Central Bank will not lower its key rate in 2014, and based on the current rate of 0.25 percent we anticipate no hikes before the middle of 2015 at the earliest", said Bruckbauer, before adding: "To secure the supply of liquidity and reactivate the transmission mechanism throughout the entire currency zone, however, we do expect to see another long-term tender from the ECB in the first quarter of 2014, which could be tied to lending by banks." This additional liquidity should also help to protect the eurozone against the tighter financing climate imported from the USA and triggered by the Federal Reserve via the throttling of securities purchases ("tapering"). It will also be of use to European banks in covering the growing credit demand under reasonable terms and conditions.

 charts (PDF; 42 KB)

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