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08.05.2015

Bank Austria Economics 2014 Provincial Analysis:
Improved economic conditions in most provinces

  • Vorarlberg led the pack in terms of growth in 2014, followed by Burgenland and Tyrol – Styria and Salzburg brought up the rear
  • Improved economic conditions in most provinces, although the differences among the individual provinces with regard to growth increased
  • While support from industry declined over the course of 2014, there was still significant stimulus for the western provinces – and Carinthia even returned to growth thanks to industry
  • Construction industry lost momentum but still made a positive contribution to growth in five provinces
  • Service sector enjoyed a moderate upswing in the western and easternmost provinces 
  • Better growth prospects for nearly all provinces in 2015: “industrial” provinces such as Vorarlberg and Upper Austria have a slight advantage; however, the “service strongholds” also have upside potential in the second half of the year
  • Austria will see both record employment and record jobless rates once again in 2015

In 2014, the Austrian economy posted only minimal overall growth of 0.3 per cent in year-on-year comparison due to a variety of external factors. The individual provinces benefited to very different degrees from the positive effects such as the strong upsurge in the US and the moderate recovery in Europe. At the same time, not all of the provinces were severely impacted by the diminishing stimulus from the emerging economies and the geopolitical tensions caused by the conflict between Ukraine and Russia. "Last year, the Austrian provinces drifted apart from one another in economic terms in an environment that was dominated by a wide range of – sometimes contradictory – external influences. While economic conditions improved in most of the provinces, the differences among the individual provinces with regard to growth increased," said Stefan Bruckbauer, chief economist at Bank Austria, summing up the key results of Bank Austria’s Provincial Analysis.

Vorarlberg led the pack in terms of growth in 2014
"At nearly 2.5 per cent, Vorarlberg achieved the highest growth of all of the provinces in 2014, passing Burgenland and Tyrol, which tied for a distant second place. In Vorarlberg, the traditionally strong industrial sector and the revitalisation of individual service industries were the key drivers of the broad expansion of the province’s economy," reported Bruckbauer. The "second-place" provinces of Burgenland and Tyrol each turned in a robust gain of 1.2 per cent. Burgenland, which came in atop the economic rankings in 2013, fell behind again last year, as it was no longer able to benefit from the one-off effect of a major corporate relocation. Tyrol, by contrast, profited from a resurgence in export demand for industrial products over the course of the year. Upper Austria and Carinthia also enjoyed above-average economic growth. The eastern provinces were apparently only able to take advantage of the prevailing conditions to a limited extent or not at all. Lower Austria and Vienna achieved only minimal gains. Styria’s economy also struggled due to very subdued export demand, particularly in the second half of the year. This was one of the main reasons that Styria posted lower economic growth in 2014 than in the previous year. Salzburg came in at the bottom of the provincial ranking. According to the calculations of Bank Austria’s economists, Salzburg’s economy stagnated in 2014. Thus, there were two provinces that had weaker economic growth than in the previous year.

Industry provides economic stimulus only in individual cases
"Austria’s export-dependent industry failed to make a contribution to economic growth in 2014 overall, as it increasingly came under pressure in the second half of the year after a moderate start. In contrast, individual provinces – including Vorarlberg and Tyrol in particular – enjoyed very strong stimulus in some cases thanks to the combination of having a regional export orientation that was favourable under the prevailing conditions as well as the right sector structure," explained Bank Austria economist Walter Pudschedl, providing an analysis of the key sector trends. There were major differences in 2014 with regard to the development of the individual sectors. Vehicle manufacturing was one of the key drivers of growth for Austrian industry, delivering an increase of nearly 4 per cent. Production also increased in the manufacture of electronic and optical products, electrical equipment, the chemical and pharmaceutical industry, and in food manufacturing, while sectors such as the metalworking industry, machine building, and particularly the energy industry suffered losses. Along with Vorarlberg and Tyrol, which saw increases of roughly 8 per cent and 3 per cent, respectively, Upper Austria, Burgenland, and Carinthia benefited from growth in the production sector.

Construction makes positive contribution to growth in five provinces
Austria’s construction sector, and building construction in particular, lost significant momentum over the course of 2014. Thanks to the support of the civil engineering segment, however, the sector achieved a minimal increase in value creation of 0.5 per cent in real terms across Austria. Construction made a positive contribution to growth in five provinces. In fact, the sector provided exceptionally strong momentum in Styria in particular, but also in Vorarlberg and in Salzburg. In contrast, the development of construction dampened economic output in Vienna, Lower Austria, Burgenland, and Carinthia.

Service sector delivers weak gain – highest growth seen in Vienna
The Austrian service sector closed out 2014 with a slight gain in value creation thanks to the positive development of the healthcare and social service segment, public services, and the real estate sector. "The service sector provided considerable support to the overall economic development in the traditionally strong service market of Vienna as well as in Styria. However, the sector’s contribution to growth remained marginal in the rest of the provinces," said Pudschedl. This was largely due to the fact that the retail segment came under significant pressure due to the difficult conditions on the labour market. In addition, the development of revenues was strained in the tourism sector due to a decline in overnight stays in the western provinces and there was very little stimulus in the business services segments in light of the sluggish industrial activity.

Better growth prospects expected in nearly all provinces in 2015
"Due to the improved economic environment, we expect to see better economic development for nearly all of the provinces in 2015," concluded Pudschedl. Following a subdued start to the year, favourable external conditions such as the stabilisation of the recovery in Europe, the weak euro, and low oil prices will drive a moderate economic upswing in Austria over the course of the rest of the year. Foreign trade will gain momentum despite the worsening conditions in some growth markets and the continuing Russia/Ukraine crisis. However, foreign trade will no longer make such a strong contribution to growth due to the increase in imports. Nevertheless, the resurgence in foreign demand will likely provide a boost to investment activity in the second half of the year, especially because financing conditions should remain favourable thanks to the ECB’s loose monetary policy. Private consumption will also continue its moderate growth trend on the back of low inflation. As a result, domestic demand will become an increasingly important driver of Austria’s economic development in the coming months. Amidst these conditions, the Austrian economy will turn in significantly higher growth than in 2014, at 0.9 per cent.

Austria’s moderate growth will be broadly based in 2015. The growth potential for the individual provinces is more balanced, so somewhat smaller differences in growth are to be expected among the provinces than last year. "In our opinion, the more export-oriented, broadly based industrial provinces have a slight advantage, which means that the western provinces will have the edge from a regional perspective. We expect economic growth of over 1 per cent for Vorarlberg, Upper Austria, and Styria," said Pudschedl. In the eastern provinces, the growth rates will likely remain below the national average. However, "service strongholds" such as Salzburg and Vienna – which has a slight lead in this sector – are expected to benefit from stronger activity in the service sector later in the year.

Labour market conditions intensify in all provinces
While 2014 was a year of record jobless rates for the Austrian provinces on the one hand, it was also a year of record employment on the other. The divergent economic development was also reflected in the trends on the regional labour markets. Vienna and Salzburg experienced double-digit growth in unemployment. Upper Austria also saw a comparatively large increase in its unemployment figures in 2014, but once again had the lowest jobless rate in Austria with an annual average of 5.7 per cent, a distinction it shared with Salzburg this time around. Vienna had the highest figure in Austria at 11.6 per cent. At the same time, the increase in employment accelerated in nearly all of the provinces despite the sluggish economic developments. The number of jobs increased by 0.6 per cent on average, with Vorarlberg leading the pack at 1.6 per cent. “2014 was another year of record employment, as eight of the nine provinces reached all-time highs thanks to gains in the service sector,” reported Bruckbauer, adding, "Unfortunately, 2014 was also a year of record unemployment." The jobless rate is expected to increase further in all of the provinces in 2015 – from an average of 8.4 per cent to over 9 per cent for Austria as a whole. In the provinces, the figures will range from 6 per cent (Salzburg) to more than 13 per cent (Vienna).

 Charts (PDF; 172 KB)

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

A detailed analysis of the economic developments in the Austrian provinces including an outlook for 2015 can be found in Bank Austria’s publication “Provincial Summary”. The brochure will soon be available as a free download on Bank Austria’s web site.