Bank Austria Business Indicator:
Economic activity remains sluggish – revival only in course of year

  • Bank Austria's Business Indicator remained unchanged in February in neutral territory
  • Consumer and industrial sentiment still subdued, in spite of strengthening tailwind from Europe
  • GDP growing in Q1 2015 thanks to weak euro and low inflation
  • Gradual pick-up of recovery during year: GDP growth of 0.9 percent still expected for 2015
  • "Quantitative easing" successful, mainly thanks to exchange rate and alleviated pressure on state
  • Inflation tracking commodity prices: largely bottomed out, upwards movement expected from the summer

The Austrian economy is making no headway at present after the mild improvement in the economic climate at the start of the year. "The Bank Austria Business Indicator remained at exactly zero points in February after a modest increase in the previous month. The current economic situation is thus somewhat more favourable than towards the end of the previous year, but the local economy still lacks momentum", said Bank Austria chief economist Stefan Bruckbauer. What is more, the indicators available to date show no signs of any sustained recovery in economic activity in Austria.

The mood in Austrian industry has therefore turned even gloomier. "Consumer sentiment in February was only slightly worse compared to the previous month. This was in contrast to the business outlooks of industrial companies, which noticeably worsened. This means the Austrian economic climate is drifting further away from the positive trend in Europe just now", explained Bank Austria economist Walter Pudschedl. While economic activity has already bottomed out in many countries around Europe and at least a mild recovery has set in with positive impacts on the labour market, there are as yet no signs of improvement in Austria. This suggests that the deteriorating mood at present somewhat exaggerates the current situation in the Austrian economy. The economists at Bank Austria also assume that the tailwind from Europe will soon lead to a turn in fortunes. The European industrial sentiment index weighted for Austrian foreign trade continued its slight upwards trend in February and thus promises some impetus for the Austrian export economy from Europe.

"Following the decline in GDP at the end of 2014 by 0.2 percent compared to the previous quarter we assume that the Austrian economy managed to benefit from the positive impulses from Europe in the first quarter of 2015 to generate moderate economic growth. We expect to see mild growth of 0.2 percent for the start of the year, driven not only by exports but also by private consumption", said Pudschedl. The prolonged weakening of the euro has provided a solid boost to foreign trade so far, which was tangible in export growth even before the turn of the year. Furthermore, at the start of 2015 private consumption has seemingly been able to continue its modest upwards trend from the previous quarters thanks to the low inflation of well under one percent. By contrast, investment activity has yet to post any noticeable increase in spite of the favourable financing conditions.

Throughout the rest of the year the good overall climate should pave the way for the Austrian economy to join the recovery in Europe and trigger a steady acceleration in growth dynamics. "For 2015 as a whole we anticipate GDP will rise by 0.9 percent and hence clearly post faster growth than in the previous year. Although the growth is not yet sustainable, the Austrian economy does still profit from the low price of oil and the weaker euro", said Bruckbauer.

"Quantitative easing": weaker euro the main factor
The supportive effect from the low oil price is not likely to get any stronger in the coming months. By contrast, the benefit derived from the weaker euro will probably still increase somewhat after the ECB recently launched its "quantitative easing" programme. "While we are not overly confident that the ECB's securities purchasing programme will generate an impact in Austria alongside the effects of the weaker euro, the TLTRO programme should still exert a mildly positive effect on credit growth. That said, even just a few days after the start of the ECB’s purchasing programme there are signs that the European markets are less fragmented and favourable financing conditions are now available in all countries of Europe to strengthen investments and consumption", said Bruckbauer. The state in particular is currently benefiting from the ECB’s policy.

Inflation in Austria now barely falling
Although Austrian inflation is still significantly above peer figures throughout Europe, it sank well below the one-percent mark at the start of the year. "The commodity prices that were responsible for the sharp reduction in inflation since the autumn have turned up again slightly, at least when measured in euros. This means that we believe Austrian inflation has already bottomed out for the time being. No further significant decline is expected any more", said Bruckbauer. Yet inflation will remain low in the coming months and total roughly 0.5 percent yoy. An upwards trend should then take shape from the summer onwards. All told, Bank Austria continues to assume inflation in 2015 will total 0.9 percent, rising to 1.6 percent in 2016.

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