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14.03.2014

Bank Austria Business Indicator:
Austrian economy continues its recovery despite weaker upswing

  • Bank Austria Business Indicator rises slightly in February to 0.9 points – all components of the Indicator are currently pointing upward, but there are still no strong growth signals
  • Positive sentiment in industry, consumers more confident again
  • Economic growth of up to 2 percent in 2014 with the prospect of greater momentum from private consumption
  • Stabilisation of the labour market thanks to a mild winter, but final turnaround will not come until mid-2014: Unemployment rate will rise to 7.8 percent in 2014
  • Inflation falls to below 2 percent in 2014, despite price surge due to tax hikes in March
  • ECB expected to hold key rate

In the first few months of 2014 the Austrian economy continued the recovery that had started in mid-2013. "In February the Bank Austria Business Indicator reached 0.9 points, a figure that points to modest growth for the Austrian economy. Furthermore, the 0.2 point improvement on the previous month underlines that the recovery will be sustained," said Bank Austria chief economist Stefan Bruckbauer summing up the current trend. During 2013 the Austrian economy gained moderate but steady momentum and in the fourth quarter GDP actually grew by 0.3 percent compared to the previous quarter. "Given the current development of the Bank Austria Business Indicator we are optimistic that economic growth in Austria will increase by approximately ½ percent in this quarter compared to the previous quarter. Thus, this upturn is weaker than former upturns," said Bruckbauer.

The improvement in the economic climate in Austria indicated by this latest increase in the Bank Austria Business Indicator is still slow in coming but all the components of the indicator are currently pointing upwards. Sentiment among Austrian industrial companies improved significantly in February. While the latest economic data from a number of emerging economies caused uncertainty, sustained growth in the USA and the continued recovery in Europe are supportive. The European industry confidence indicator weighted by Austrian foreign trade is now well above the long-term average. "It was not just the mood of European and Austrian industry in particular that improved in February, Austrian consumers have also regained confidence," said Bank Austria economist Walter Pudschedl explaining the main reasons for the upward movement of the Bank Austria Business Indicator in February.

"We expect that the recovery in Austria will soon gather pace. Despite the moderate start to the year, a growth rate of 2 percent can be achieved in 2014", said Pudschedl. Additional stimulus for the upturn will also come from abroad. Furthermore, rising export demand will stimulate investment activity and later on in the year private consumption will also make a stronger contribution to growth. Bank Austria economists continue to expect GDP growth of 2.1 percent in 2015, which will be driven by an even balance of all demand components.

Stabilisation on the labour market, but no turnaround yet
Despite the muted upturn so far, the situation on the labour market slowly began to stabilise in the first few months of 2014. At 7.9 percent, the seasonally adjusted unemployment rate in February has remained unchanged since the start of winter. Nevertheless, the Bank Austria economists are still not giving the all-clear, as the mild winter has fudged the figures somewhat. "For a sustained turnaround on the labour market, the Austrian economy will have to gather greater momentum. We still believe that the situation on the Austrian labour market will remain unchanged until the middle of the year. For the year as a whole, the unemployment rate will actually rise to 7.8 percent," said Bruckbauer.

Low inflation in 2014: No rate hike by the EZB, but new facility possible
One consequence of the still muted recovery is the very moderate inflation rate that has prevailed in recent months. Due to low commodity prices and the lack of demand-side stimulus, the estimated inflation rate of 1.5 percent year-on-year was as low as in January. In March, the increase in tobacco and alcohol taxes as well as the standard consumption tax on new cars (NoVA) will push up inflation. In the first six months of 2014, inflation will remain very low, at well below two percent. A slight upward trend is only to be expected later on in the year, when the economy starts to pick up again. At 1.7 percent, inflation in 2014 as a whole will be clearly lower than the long-term Austrian average. In a European comparison, inflation in Austria is at the upper end of the scale, partly because the tax increases in March will push up inflation by roughly ¼ of a percentage point.

No movement on the ECB key rate
Despite low inflation rates throughout Europe and continuing low inflationary expectations, the European Central Bank is unlikely to cut the key interest rate still further from its current 0.25 percent. "While we no longer expect any further reduction in interest rates, we do believe the ECB might try to influence liquidity in the coming months by taking unconventional measures such as a new facility to provide long-term financing for the banking sector. This would help tackle the biggest threat to growth and inflation, the ineffective functioning of the monetary transmission mechanism," said Bruckbauer.

 charts (PDF; 43 KB)

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