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18.08.2014

Bank Austria Business Indicator:
Economic growth remains below 1 percent in Austria in 2014

• Bank Austria Business Indicator falls to 0.5 points in July: lowest reading for one year
• Consumer and industry sentiment worsen: recovery still in the starting blocks
• Weaker support from Europe than expected. New burdens subdue prospects for second half of year too
• Pace of recovery remains sedate: growth forecast for 2014 lowered to 0.8 percent
• Russian crisis costing Austrian economy ½ percent in growth

Following the subdued economic development in the first half of 2014, there are no signs of a pick-up in economic activity in Austria at the start of the third quarter. “The mood among Austrian consumers was more reserved in July than it was in the previous month, and Austrian industry has become more sceptical regarding future business development, even in the course of this year”, said Bank Austria chief economist Stefan Bruckbauer. The latest confidence indicators pulled Bank Austria’s monthly Business Indicator down in July. “Falling slightly on the previous month by 0.3 points, Bank Austria’s Business Indicator sat at just 0.5 points in July. This means our indicator is at its lowest level for almost one year, and therefore barely signals any new impetus for the third quarter either”, said Bruckbauer.

Instead of the pick-up of economic activity expected so far, the economic climate has darkened moving into the second half of 2014. The economic recovery in Austria has been checked by an increasing number of factors in recent months. The crisis in the Middle East as well as the Ukraine conflict with the resultant EU sanctions against Russia and the counter sanctions are all having an effect. “The problems caused by the recent geopolitical developments have come at an inopportune moment for the Austrian economy”, said Bruckbauer, “because irrespective of these issues, the recovery in Europe is only making slow progress. Thus there is still a lack of support for the domestic economy.”

“The European economy disappointed in the second quarter. Although the recovery continues and some countries on the periphery have performed well, it is mainly Austria’s key trading partners from the EU that have fallen short of expectations”, explained Bank Austria economist Walter Pudschedl. The German economy was unable to provide as much stimulus as anticipated, while above all, the recovery in Italy, Austria’s second most important export partner, even came to a standstill. In view of the changed overall conditions and the now significant economic risks, we do not expect to see any major stimulation of economic activity in Europe over the coming months. Although the Bank Austria economists believe that the recovery is gradually taking root, the data from Europe for the coming months does not lead us to conclude there will be any noticeable strengthening of demand for Austrian export goods, even if the US economy and the growth markets in Asia continue to provide support.

At any rate, the anticipated export-driven acceleration of economic activity in the second half of the year has become less likely under the current conditions. This means investment activity in the coming months will not expand to any considerable extent, despite the low interest rates in Austria. Additionally, the requirements for more energetic growth in private consumption have not improved. On the one hand, inflation in Austria is noticeably high at just under 2 percent in light of the muted economic climate, and is curtailing real income growth. On the other hand, the difficult situation on the labour market is not getting any better owing to the lack of economic stimulus. “Employment growth is tending to slow, while for now there is no sign of a trend reversal in the rising rate of unemployment; for 2014 we anticipate a rise in the unemployment rate to an annual average of 8.6 percent”, revealed Pudschedl. This means no major revival of economic activity is on the horizon for the Austrian economy in the second half of the year. According to the Bank Austria economists the subdued growth trajectory will remain just above the zero mark, and therefore the growth forecasts so far for 2014 have clearly been too optimistic. “In view of the prevailing conditions overall, economic growth throughout 2014 is now only expected to total just short of 1 percent” said Bruckbauer, summarising the prospects for economic growth in 2014.

The year 2015 will thus start from a somewhat lower level, and with estimated GDP growth of 1.5 percent based on the current situation it lags behind expectations to date. “Assuming there will be no further escalation in the Russia-Ukraine crisis, this will and will have cost the Austrian economy roughly ½ percentage point of growth overall”, said Stefan Bruckbauer. In this context, the problem is not so much the direct effects caused by trade with Russia but the heightened uncertainty. The Bank Austria economists essentially believe that while the recovery of the eurozone and the Austrian economy remains intact, the uncertainties are growing and this could make it necessary to deploy additional economic policy measures.

 charts (PDF; 43 KB)

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