Bank Austria Business Indicator:
Recovery continues in Austria – but further impetus for more momentum lacking just now

  • Bank Austria Business Indicator remained stable at 0.2 points in August: industrial sentiment a burden, consumers somewhat more confident
  • Hardly any additional export stimulus expected until late 2015 / early 2016 due to weaker demand from growth markets
  • However, consumption will drive growth in 2015 – somewhat livelier economic activity expected in second half of 2015 on the whole
  • Bank Austria still anticipates overall GDP growth of 0.9 percent through 2015
  • Recovery to continue at greater pace in 2016, mainly due to stronger domestic demand Situation still tense on labour market

The Austrian economy continues to recover, yet as we move into the autumn there are still no signs of a noticeable upturn in economic activity. "Bank Austria’s Business Indicator reached 0.2 points in August, and is therefore unchanged compared to the previous month. The mild deterioration in industrial sentiment compared to July pulled the indicator down, but this was offset by the more confident consumers", revealed Bank Austria chief economist Stefan Bruckbauer. So far the third quarter is producing an average indicator reading of 0.2 points as well, after 0.1 points in the second quarter. "Bank Austria’s latest Business Indicator signals that the Austrian economy is growing slightly faster. GDP growth of 0.5 percent yoy in the spring should be beaten in the current quarter", revealed Bruckbauer.

Austrian consumers are still disproportionately pessimistic by European comparison. Nonetheless, the sentiment among Austrian consumers in August was slightly improved, despite the still tense situation on the labour market. According to calculations in the Bank Austria Business Indicator, the improvement in consumer mood managed to compensate for the somewhat more pessimistic assessment of business prospects in industry. Following the leisurely improvement of previous months, the economic concerns surrounding certain emerging markets have put a damper on sentiment in European industry to some extent. In Austria, the negative signals were reflected more strongly in a decline of industrial confidence.

"The sentiment, but first and foremost the recovery of the European economy overall, is proving to be surprisingly robust, in spite of the many risks to economic activity in recent months. In the wake of the sound and clearly durable upswing in the eurozone, the recovery of the Austrian economy remains in gear as well, but picking up any more pace is proving difficult", said Bruckbauer. While the sharper upturn in the growth rate expected for the second half of the year will not disappear completely under the more difficult global conditions at present, it will at least be less pronounced. The economic weaknesses of the emerging markets, above all China, the ongoing crises in Ukraine and the EU sanctions against Russia are dampening the prospects for global trade. Austria is significantly affected by this, more than most, as a supplier of capital goods that require intensive investment. So while the demand for Austrian export products will increase somewhat in the coming months, boosted by the ongoing recovery in Europe, the weaker emerging markets will provide less support to the Austrian economy for its growth than was previously assumed. Consequently, investment activity will barely be able to pick up pace towards the end of the year, in spite of the persistently low interest rates.

By contrast, consumption will likely be able to expand its role as a reliable pillar of economic growth in the coming months. The low inflation, which will total no more than an annual average of 1.2 percent in 2015 due to the lower prices of commodities, especially crude oil, is boosting the purchasing power of Austrian consumers. "We anticipate that the somewhat more sluggish export dynamics until the turn of the year compared to our original assumptions will be compensated for by livelier consumer demand. With investment activity continuing its dogged progress the recovery is expected to persist with a modest upwards trend. For 2015 as a whole we uphold our growth projection of 0.9 percent for the Austrian economy", said Bruckbauer.

Somewhat better growth prospects for 2016
Thanks to the income tax reform, consumption will become an even more important driver of growth in the Austrian economy in 2016. The tax reform is expected to have a positive impact on the economy overall amounting to 0.4 percentage points. With the European recovery becoming increasingly stable the stronger consumption should lead to an expansion of investments, but the relatively low utilisation rate of the Austrian economy means this will be quite modest. "We project economic growth in Austria will total 1.5 percent in 2016 since we assume that there will be more support from abroad and more buoyant domestic demand based on the increased investment and consumption", explained Bank Austria economist Walter Pudschedl.

Recovery in economy yet to reach labour market
The recovery in the Austrian economy will not be reflected in an improvement on the Austrian labour market for now. For 2015 the Bank Austria economists still expect an increase in the jobless rate to 9.2 percent. And the signs are no better for 2016 either. "Since the growth prospects are somewhat brighter for 2016 we expect there will be higher employment growth than in the current year. However, the persistently strong growth in labour force potential will not be enough to lower unemployment. On the contrary, we now expect the jobless rate to rise further to 9.5 percent in 2016", said Pudschedl.

 Charts (PDF; 208 KB)

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