Bank Austria Business Indicator:
Dip in economic activity towards end of year, but hope remains for 2015

  • Bank Austria's Business Indicator sinks to -0.2 points in September: weaker sentiment across the board weighs down on outlook for coming months
  • After very poor economic development in the final quarter of 2014, the recovery should pick up some pace again in 2015
  • Demand impulses from other countries will stimulate exports and investments: GDP growth of 1.6 percent expected for 2015 after just 0.6 percent in 2014
  • Greater risks, and economic policy under huge pressure, despite cautious optimism for 2015

The growth prospects for the Austrian economy are becoming ever gloomier. "Bank Austria's Business Indicator sank to -0.2 points in September, pushing the indicator back into negative territory for the first time in eighteen months. Thus we have to assume that the very moderate economic development to date in Austria will experience a dip in the coming months", said Bank Austria chief economist Stefan Bruckbauer, summarising the situation.

In light of the increasing uncertainty in recent months, the moderate recovery achieved by the European and therefore the Austrian economy too this year is taking a breather. "The Russia/Ukraine crisis and the tensions in the Middle East have blighted sentiment in the Austrian economy at the start of autumn on a broad scale. While the components of Bank Austria’s Business Indicator all turned downwards in September in light of these geopolitical risks, the altogether modest deterioration in sentiment allows us to conclude there will be no significant economic setback in the coming months", said Bank Austria economist Walter Pudschedl. Figures from other countries are largely stable; the overall index for the European industry climate weighted with Austrian foreign trade is currently much higher than the long-term average, while Austrian industrial sentiment falls just short of the same benchmark at present. Consumer confidence, by contrast, has taken a hit. Austrian consumers have become much more sceptical in recent months. The mood among Austrian consumers is more subdued than for consumers throughout the eurozone, despite the comparatively encouraging labour market trends.

Bank Austria’s Business Indicator has been trending downwards for some months now. This decline for the indicator is confirmed by the hard economic figures published so far for the third quarter of 2014. This data shows that the industrial upswing has now almost completely halted, cracks have appeared in construction activity, trade has slipped into negative territory and services in Austria have lost momentum. The data available in combination with leading figures of the Bank Austria Business Indicator demonstrate that the pace of the recovery could no longer be raised in the third quarter compared to the first half of the year, even if modest economic growth was possibly achieved. The Austrian economy is also set to expand slowly in the fourth and current quarter of the year. Although there is no significant impetus from consumption and investments, net exports are likely to generate some growth towards the end of the year thanks to the lower import demand. "The heightened uncertainties will be a drag on economic activity in the second half of the year, and increasingly so at the end of 2014. Nonetheless, under the current circumstances we believe our 0.6 percent growth forecast for 2014 as a whole is stable", added Pudschedl.

"The gloomy economic sentiment just now seems somewhat overstated. We remain optimistic that the economic recovery will continue in Austria in the coming year. For 2015 we predict GDP growth of 1.6 percent since there will be many positive impacts on the Austrian economy", said Bruckbauer convincingly. Global demand is already picking up pace again. While the USA is displaying solid rates of growth, many emerging markets are making better progress again too. The weaker euro will support a revival of export demand somewhat, which should be reflected in a pick-up of investment activity. The main triggers in this respect will be the persistently low interest rate and the new liquidity measures of the ECB, which provide greater leeway for many European banks. What is more, the progress made towards implementing a banking union should exert a positive impact on financing conditions. "While the European Central Bank has rolled out a series of supportive measures in recent years, policymakers are under more pressure to take action amidst an economic environment that exhibits growing risks of a lengthy period of weak growth in Europe", analysed Bruckbauer, before adding: "To give the European economy a helping hand, I believe that fiscal policy measures, such as a joint investment initiative, should soon be offered as an alternative to the expansionary monetary policy." Following the successful budget restructuring of recent years in Europe there is now some financial leeway there, and spending can be redirected creatively. "However, fiscal impetus does not signal a departure from the consolidation efforts in Europe and may not be used as an excuse for delaying structural reforms", said Bruckbauer in conclusion.

 Charts (PDF, 32 KB)

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