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17.02.2014

Bank Austria Business Indicator:
Economic recovery still moderate

  • Bank Austria Business Indicator reveals little additional impetus in January with a reading of 0.8 points
  • Pace of growth expected to double in first quarter of 2014 since investments and exports will rise
  • Weaknesses in some emerging markets and subdued consumption still problematic for now
  • Stabilisation on labour market to inject momentum into consumption throughout 2014

The recovery in the Austrian economy is continuing. Following the pick-up in growth to 0.3 percent at the end of the last quarter of 2013, however, the early indicators already available do not reveal any further increase in the pace of recovery. "The Bank Austria Business Indicator reached 0.8 points in January. This is a slight decline on the previous month. While this means the indicator remains at a level that demonstrates the Austrian economy is still on the growth path observed at the start of 2014, it shows no additional momentum compared to the previous month", said Bank Austria chief economist Stefan Bruckbauer. Therefore the moderate pace of recovery from previous months has continued, but there is currently no sign of a robust acceleration in economic activity in Austria. "Muted economic signals from certain emerging markets coupled with the still feeble private consumption are thwarting hopes of a faster recovery. We still expect an improvement in the first quarter though", confirmed Bruckbauer.

Every single component of the survey was responsible for the slight decrease in the Bank Austria Business Indicator in January compared to the previous month. In spite of the headwind from the emerging markets, however, the European industrial sentiment indicator weighted with Austrian foreign trade dropped only slightly. Austrian industry's assessment of business, by contrast, has noticeably worsened, and fallen under its long-term average. "It is not only sentiment in the European and above all Austrian manufacturing sectors that has fallen, Austrian consumers were also somewhat less confident in January about 2014 as a whole", said Bank Austria economist Walter Pudschedl. The upbeat mood that enveloped Austrian consumers in the autumn has subsided again due to the ongoing difficulties on the labour market.

International support grows for Austrian economy
During the first quarter of 2014 the economists at Bank Austria expect more international support for the Austrian economy. The global economy is on solid grounds at the start of 2014, even though the growth gap between developed countries and the emerging markets seems to be widening. The data available on the US economy reveals robust growth. The loose monetary and budgetary policy in Japan continues to generate momentum. In Europe, the UK economy has had a good start to 2014 across all sectors, which is having a positive impact on the labour market. After all, the eurozone is also increasingly a driving force for the Austrian economy. Since the countries on the eurozone periphery have also been embraced by the upturn, the economy in the eurozone is set to grow by 0.4 percent in the first quarter compared to the previous period, faster than ever since mid-2011. The oft-proven economic powerhouse of Germany will continue to make progress and pull the Austrian economy along. "For the first quarter of 2014 we expect to see economic growth in Austria increase to more than ½ percent compared to the previous quarter. Besides the external demand, this growth is also being driven by the faster pace of investment activity", said Pudschedl, confidently.

There is still a lack of momentum in domestic demand, especially in private consumption. Over the coming months, the economists at Bank Austria believe private consumption will be able to provide more and more support for the recovery in the Austrian economy, which means GDP in 2014 could well grow by 2 percent on a broad basis. The worse situation on the labour market was a drag throughout 2013. In the meantime though, the first signs of stabilisation have appeared, which should soon be reflected in consumption following an improvement in consumer sentiment. "In January 2014 the number of those out of work sat at a record level, but the increase slowed significantly, the decline in public-sector jobs fell, and employment growth picked up again by annual comparison. Seasonally adjusted, the unemployment rate did not rise any further in January, coming in at 7.9 percent", said Bruckbauer. At the start of 2014 the Austrian labour market is slowly beginning to detach itself from the negative trend, even though the mild winter weather is likely to have benefited developments in recent weeks. Bank Austria anticipates an annual average unemployment rate of 7.8 percent for 2014, slightly higher than the 7.6 percent figure in 2013.

Higher income and low inflation to support private consumption
Moreover, private consumption will be strengthened over the coming months by growth in real incomes supported by low inflation. "For 2014 we assume that inflation will drop to an average of 1.7 percent, after reaching 2 percent in the previous year. Although hikes in taxes and charges will generate some tangible upwards pressure during 2014, inflation is being restrained by the sluggish development of commodity prices", said Bruckbauer. According to Bank Austria calculations, the latest tax increases – some of which should take effect as early as March – will bump inflation up by around ¼ percentage point. This is one reason why inflation in Austria in 2014 will lie roughly ½ percentage point above the average inflation rate in the eurozone.

 charts (PDF; 43 KB)

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