Bank Austria Provincial Economic Analysis:
Vorarlberg beats rest of Austria

  • Economic activity in Austrian provinces made moderate recovery in first half of 2014
  • Upturn in industry stimulated regional economy: above-average growth in Vorarlberg, Burgenland and Upper Austria
  • Economy slowing at start of autumn, but economic growth expected to be higher in most federal provinces in 2014 than in previous year
  • Growth leader in 2014: Vorarlberg supplants Burgenland
  • Situation on regional labour market intensifies again, only in Vorarlberg do signs of stability emerge: Upper Austria and Salzburg exhibit lowest unemployment rate in 2014 (5.7 percent), Vienna still leads the way with 11.5 percent
  • Export-oriented provinces at a slight advantage for 2015: recovery could pick up pace again in 2015 if demand impulses from other countries stimulate exports and investments

The Austrian economy trended upwards slightly in the first half of 2014 despite some tricky overall conditions. Global demand supported a moderate revival of the export economy and ensured investments pointed upwards in the early months of the year. Renewed impetus in retail bolstered private consumption in the spring, supported by stabilisation in the meantime on the labour market, though this was due to the favourable weather conditions. However, the expectation of a noticeable pick-up in economic activity in Austria did not materialise in the second quarter of 2014. Economic growth rose only marginally from 0.1 percent at the start of the year to 0.2 percent qoq, with external demand failing to accelerate and investments in particular tailing off again.

Economic activity in 4 provinces grows faster than national figure in the first six months
"In the first half of 2014 the Austrian economy expanded by 0.3 percent year-on-year. Vorarlberg, but also Burgenland, Upper Austria and Styria managed to perform exceptionally well under the difficult economic conditions. Vienna and Carinthia came in around the national average. By contrast, economic development in Tyrol, Salzburg as well as Lower Austria lagged behind the Austrian average", said chief economist Stefan Bruckbauer, summing up the results of Bank Austria’s latest economic analysis on developments in Austria’s provinces during the first half of 2014.

Industry shows signs of life in first half of 2014
"The modest economic recovery during the first six months of 2014 in the Austrian provinces is primarily thanks to the upswing in industry, which was particularly strong in Vorarlberg and Burgenland", analysed Bruckbauer. Following a gain of just 0.6 percent in 2013, industrial growth throughout Austria rose by more than 2 percent on average in the first six months compared to the previous year. Export demand was bolstered by the firmer recovery of the European economy, in turn generating renewed stimulus for manufacturing. Industry celebrated its strongest comeback by far in Vorarlberg with double-digit growth in production. This was heavily influenced by the phasing out of the "Sochi boom" and the subsequent correction in key segments, such as mechanical engineering and metalware. Despite the phasing out of the non-recurring effect of a beverages company relocating to the province, growth remained very high in Burgenland thanks partly to investments in the energy sector. Alongside these two front-runners, industrial growth exceeded the national average in three provinces: the electronics industry generated vital growth stimulus in Carinthia. Upper Austria benefited amongst other things from the still positive development of the automotive industry, while Vienna turned the corner following three years of declining production. Only Tyrol and principally Salzburg were unable to profit from the support given by the somewhat firmer demand from abroad. Industrial production in these two federal provinces fell short of the previous year’s level in the first six months of 2014.

Construction injected a great deal of momentum to the provinces in the first half of 2014 for the most part, albeit at a declining rate. By annual comparison, production sold rose almost 6 percent in Austria. "In Upper Austria, Styria, Vorarlberg and Burgenland the construction industry grew particularly strongly, driven mainly by civil engineering. Only in Vienna and particularly in Lower Austria did construction activity falter, and was unable to make any positive contribution to economic growth", revealed Bank Austria economist Walter Pudschedl.

The services sector enjoyed an encouraging first six months too. Retail sales rose slightly in all federal provinces apart from Vienna and Upper Austria. Trade was supportive particularly in Salzburg, but also in Vorarlberg, where the strength of the franc against the euro brought the added benefit of purchasing power from Switzerland. Tourism is a traditional strength of the Austrian economy, and while the number of overnight stays fell 1.3 percent short of the previous year’s result in the first six months, in spite of an upturn during the year, 2013 was admittedly a record year for almost every province. Eastern provinces in Austria enjoy a clear advantage in tourism, with Vienna registering the strongest growth in overnight stays having benefited from the ongoing boom in city tourism. By contrast, the tourism hotspots in western Austria (Salzburg, Tyrol and Vorarlberg) suffered setbacks. Employment as an indicator for growth throughout the entire services sector is trending upwards in nearly every province, at least to some extent. "The services sector experienced so-so growth in the first six months, but did at least manage to make a modest contribution to growth in all federal provinces. Carinthia barely produced any movement in this segment, while growth in the services sector in Vorarlberg and Burgenland was very dynamic", revealed Pudschedl.

Great international uncertainty weighs down on economic activity
"The modest economic upswing discernible in the provinces during the first half of the year has since died down. The Russia/Ukraine crisis, the tensions in the Middle East and the dogged recovery in the eurozone have blighted sentiment in the Austrian economy at the start of autumn on a broad scale. The recovery in most federal provinces is taking a breather", said Stefan Bruckbauer. The hard economic figures already published for the third quarter of 2014 show that the industrial upswing has now almost completely halted, cracks have appeared in the sound construction activity, trade has slipped into negative territory and services in Austria have lost momentum, with the exception of tourism that reported a good summer season.

"The heightened international uncertainties will be a drag on economic activity in the federal provinces in the second half of the year, and increasingly so at the end of 2014. Nonetheless, all provinces are still likely to end this difficult year producing at least moderate economic growth”, said Bruckbauer, adding: “With growth of almost 2 percent Vorarlberg will supplant Burgenland as growth leader in 2014 and grow much faster than Austria as a whole, where we predict GDP growth of 0.6 percent." Alongside Burgenland, above-average rates of expansion will be achieved in 2014 by Upper Austria, Styria and Carinthia thanks to the strong industrial activity in the first six months. All told, the economists at Bank Austria believe only two of the nine provinces will produce a weaker growth performance than in 2013: Burgenland, albeit from a high baseline figure in the previous year, and Tyrol.

No stabilisation on the labour market
The moderate pace of recovery was not enough in any federal province to prevent the situation on the labour market from worsening during the year. The seasonally adjusted jobless rate for Austria rose to an average of 8.7 percent by September, which means average unemployment is 0.7 percentage points higher than at the start of the year. Economic trends do not hold out the prospect of any stimulus for the labour market by the end of the year either. "We believe the unemployment rate in Austria will total an average 8.5 percent in 2014", declared Pudschedl, before adding: "The individual rates range from 5.7 percent in Upper Austria and Salzburg to roughly 11.5 percent in Vienna." Apart from Vorarlberg, the jobless rate will be much higher than 2013 in all federal provinces.

2015: hopes for faster growth in all provinces
"We believe that the current pessimism is somewhat exaggerated and the economic recovery will continue in the Austrian provinces in the coming year at higher rates than in 2014", explained Bruckbauer. Bank Austria predicts GDP growth of 1.6 percent in 2015 for the whole of Austria, as there are factors currently underpinning hopes of an upwards trend in the domestic economy. Global demand is already picking up some pace again, and the weaker euro should help the export economy. This will be reflected in a revival of investment activity supported by the still favourable financing conditions. The recovery in investment activity will increasingly result in higher employment next year. It is possible we will see a pick-up in private consumption as the year progresses, despite being nuanced somewhat by the still rising joblessness caused by an increase in workforce potential. Acceleration in global growth and the continued recovery of economic activity in Europe will keep the Austrian provinces growing in 2015, albeit exposed to greater risks. "The general conditions expected in 2015 will be advantageous for the federal provinces that have a stronger export focus. This holds out the prospect of better growth opportunities for the industrial provinces of Vorarlberg, Upper Austria and Styria with their export economies than for the traditional service centres like Salzburg and Vienna", said Bruckbauer in conclusion.

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