Bank Austria Business Indicator:
First small signs of improvement in Austrian economic activity

  • Bank Austria's Business Indicator exits negative territory at start of year with modest upwards movement
  • Consumer and industrial sentiment brighten, supported by tailwind from Europe
  • Decline in oil price pushes average annual inflation down below 1 percent for 2015, injecting more momentum into private consumption
  • Increased global demand and weaker euro bolster export growth and boost willingness to invest
  • Growth forecast for 2015 raised to 0.9 percent. Yet Austria still lags behind Germany

The economic climate in Austria brightened somewhat at the start of 2015, as signalled by the modest rise in the Bank Austria Business Indicator in January. However, the upturn was just strong enough for the indicator to exit negative territory. "The latest Bank Austria Business Indicator now sits at exactly 0 points, which means at the start of 2015 barely anything has changed regarding the sluggish economic development of previous months", revealed Bank Austria's chief economist Stefan Bruckbauer. The economic prospects for the first quarter of 2015 are still clear despite the marginal improvement in sentiment. The current figures do not reveal any sustainable firming up of economic activity though.

"We expect to see a moderate revival in economic activity from the spring. The tailwind from abroad will support the Austrian economy", said Bruckbauer convincingly. Sentiment in European industry already picked up slightly in January. The sentiment indicator weighted for Austria's share in trade is currently well above the long-term average. While industrial sentiment in Austria is noticeably worse than its long-term average, the improvement in Europe is already clearly influencing the business assessments of Austrian producers. The mood among consumers brightened to some extent at the start of the year too, in spite of the persistently difficult position on the labour market.

The clear reduction in inflation should facilitate a continued improvement in consumer sentiment. Inflation in Austria is set to fall to roughly 0.5 percent by the middle of the year. Given the much lower price of oil than in the previous year, sitting at just over 50 US dollars per barrel on average, the economists at Bank Austria only expect an average inflation rate of 0.9 percent in 2015. "The low rate of inflation generates an increase in real incomes while the fall in the oil price creates more purchasing power, which will lend more momentum to private consumption. An average household in Austria will save approximately EUR 300 in fuel costs in 2015 compared to the previous year, while a household using heating oil for its heating will save a further EUR 400", calculated Bank Austria economist Walter Pudschedl.

In the coming months the Austrian export industry should be able to make increased use of the sound global demand and the recovery that is slowly taking root in Europe, as depicted in the latest sentiment indicators and real economic figures. This will be facilitated by the lower oil price and the weak euro both providing support for economic activity in the coming months", added Pudschedl. The abrupt increase in price competitiveness in many sales markets will boost export growth in the course of 2015 and therefore stimulate investment activity.

Following weak GDP growth in the first quarter of 2015, the recovery of the Austrian economy should gain some momentum throughout the rest of the year. "In light of the recent revision of the previous quarter's figures as well as the likely stronger support from the low oil price and the weak euro than previously assumed, we have raised our 2015 growth outlook from 0.7 to 0.9 percent. For 2016 we still expect an increase in GDP by 1.5 percent", said Bruckbauer. Political factors, such as the Ukraine crisis and the outstanding debt solution for Greece, constitute significant downside risks to the forecast, while the surprisingly good economy in Germany is an upside risk.

"Purely from the euro, which has lost some 20 percent of its value compared to 2014, we anticipate an additional growth effect of roughly 0.5 percentage points for the Austrian economy. The low oil price will then add about another 0.4 percentage points as a positive growth factor. Overall, external conditions, which have improved compared to the previous year, will account for roughly two thirds of the economic growth generated until the end of 2015, totalling roughly 1.5 percent yoy", said Bruckbauer.

Quantitative easing at ECB will keep euro weak for longer
The economists at Bank Austria do not believe that the continued loosening of monetary policy as part of quantitative easing, the ECB's new securities' purchasing programme from March 2015, will bring any further significant improvements to the economy. However, the weakening of the euro, which will be a key growth factor in 2015, is also a direct consequence of the ECB's policy. It thus seems that the low interest rate in Europe will support the economy for a lengthy period, while in the USA an interest rate hike cycle is likely to start in just a few months, which should maintain the weak euro rate and its positive impact on exports for a longer time. "While the ECB has implicitly started another programme to support economic activity by indirectly influencing the exchange rate, further fiscal boosts would be necessary to strengthen the recovery in Europe and to facilitate a sustainable revival of the Austrian economy, by helping to reverse the scepticism of both producers and consumers", added 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