Bank Austria Business Indicator:
Weak signals from Austrian economy in the spring

  • Bank Austria Business Indicator rises slightly in March: moderate growth for Austrian economy in first quarter due to consumption and weak imports
  • Brighter sentiment among consumers and European industry reaches Austria
  • Favourable external environment supports pick-up in economic activity during year: GDP growth of 0.9 percent and 1.5 percent still expected for 2015 and 2016 respectively
  • Decline in price of oil reduces inflation in first quarter to 0.8 percent yoy, though trend reversal imminent

At the end of the first quarter in 2015 subtle signs of a pick-up in Austrian economic activity were detected for the first time in about six months. "Bank Austria's Business Indicator rose to 0.3 points in March. This means the indicator posted a positive reading again for the first time since November last year, which signals at least a slight upswing in the Austrian economy", revealed Bank Austria's chief economist Stefan Bruckbauer. After a decline in the closing quarter of 2014, the increase in March meant the indicator climbed marginally into positive territory even on an average basis for the first three months of 2015.

Bank Austria's economists expect weak growth in the Austrian economy for the now finished first quarter of 2015. "At the beginning of the current year, economic output increased by no more than 0.2 percent compared to the previous quarter, and at best compensated for the moderate reduction towards the end of 2014. The driving forces behind this were net exports and private consumption", estimates Bruckbauer. Although exports still lacked momentum, despite the weakening of the euro in the early months of 2015, import demand also remained sluggish thanks to the ongoing reluctance to invest, which meant foreign trade was able to make a positive contribution to growth overall. What is more, current retail figures indicate a moderate increase in private consumption supported by the low rate of inflation in the first quarter.

The improvement in the European economic climate, which has been ongoing for some months now, will soon ripple into Austria as well. Sentiment in European industry is getting better thanks above all to the upwards trend in Germany, but also to the clear improvement in Italy, the second most important trading partner of the Austrian economy. The industry index weighted with Austrian foreign trade is therefore way above the long-term average. However, sentiment in Austrian industry has so far seemed largely unaffected by this, and is noticeably more reserved than in the majority of European countries. Despite the modest improvement in March, the situation among producers is considered to be more restrained than in 2014. "Not only the mood in European industry but first and foremost that of Austrian consumers has brightened up compared to the previous month. The recent improvement in the climate that is reflected in the modest increase of Bank Austria’s Business Indicator in March should pave the way in the coming months for a gradual revival of Austrian industry too", said Bruckbauer.

The favourable external conditions characterised by the steadier recovery in Europe, the weaker euro and the low oil prices will underpin a modest revival of the Austrian economy in the course of 2015. Foreign trade will gain some momentum, despite the somewhat gloomier economic activity in some growth markets and the ongoing crisis between Russia and Ukraine, but it will not be able to make such a marked contribution to growth on account of the stronger imports. However, the more vibrant external demand should give investment activity a helping hand in the second half of the year, especially since financing conditions are likely to remain favourable because of the ECB's loose monetary policy. Supported by low inflation, private consumption continues to grow steadily, which means domestic demand in the coming months will become an increasingly important pillar of Austrian economic growth. "After early signs of a spring awakening, the outlook until the end of the year is for a moderate revival in Austrian economic activity. We uphold our growth forecast for 2015 of 0.9 percent", said Bank Austria economist Walter Pudschedl. For 2016 Bank Austria predicts GDP growth will come in at 1.5 percent driven almost exclusively by domestic demand, assuming the gentle growth continues and the external climate remains favourable.

Marginal increase in inflation from summer
The sharp fall in the price of crude oil lowered inflation to an average of 0.8 percent yoy in the first quarter of 2015, after an average of 1.7 percent in 2014. "We anticipate annual average inflation of 0.9 percent in 2015, rising to 1.6 percent in 2016. This is because the decline in commodity prices, at least in euros, has now bottomed out, the weaker euro is already driving the import prices of some consumer goods upwards, and companies have recently been able to flex their pricing power again", said Pudschedl, analysing the reasons for the imminent trend reversal of inflation in Austria. The pressure on prices will remain very subdued for the time being, so inflation should remain around its current level until the summer. In the second half of the year the oil price effect will slowly reverse and demand is then likely to push inflation up again slightly.

"As the growth outlook slowly improves, concerns about deflation are beginning to fade. Inflation prospects in Austria are starting to return to normal, as seen throughout Europe", concluded Bruckbauer, cautiously optimistic about the current economic trends.

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