Bank Austria Provincial Economic Analysis:
Upper Austria to be growth leader in 2015

  • Recovery in Europe provided strengthening stimulus for Austrian provinces during first half of 2015
  • Upswing in industry and services drove regional economy: above-average growth in Upper Austria, Burgenland and Salzburg
  • Despite increasing global headwinds, economic growth in 2015 expected to be higher than previous year in most federal provinces
  • 2015 unemployment rate will be higher than previous year in all provinces – ranging from 6.0 percent in Salzburg to 13.5 percent in Vienna
  • Continued recovery in Europe and upturn in consumption thanks to tax reform will generate higher growth in 2016 for Austrian provinces
  • Growth prospects for export-oriented states and service strongholds more balanced than for 2015

Based on the moderate upturn in economic activity in Europe, the slow recovery of the Austrian economy was able to continue in the first half of 2015. The strongest driver was foreign trade. Although only a weak increase in exports could be reported given the difficult global circumstances, imports declined as well. The high reluctance to invest slowed the demand for imports, and the moderate consumption growth came nowhere near to compensating for this.

Three provinces above Austrian average in first half of year
"In the first half of 2015, the Austrian economy grew by 0.5 percent yoy. Upper Austria, Burgenland and Salzburg were able to assert themselves exceptionally well in the difficult economic environment. Tyrol, Vorarlberg, Styria and Vienna almost reached the average figure for Austria. However, economic development in Lower Austria and Carinthia remained significantly behind that in Austria as a whole", said chief economist Stefan Bruckbauer, summing up the results of Bank Austria's recent economic analysis on economic development in the Austrian provinces for the first half of 2015.

Slight tailwind for industry in first half of 2015
"The moderate economic recovery in the Austrian provinces for the first half of 2015 is due especially to the upswing in industry, which was particularly strong in Upper Austria and Burgenland", Bruckbauer analysed. After stagnating in 2014, industry growth in Austria increased in the first six months to an average of 1.5 percent yoy. Export demand was bolstered by the firmer recovery of the European economy and the weakening of the euro, in turn generating renewed stimulus for industry. In Upper Austria, with a production increase of 7 percent, industry supplied the strongest result by far, driven by mechanical engineering and metal production. In Burgenland, growth picked up thanks to investments in the energy sector among other things. Alongside these two front-runners, industrial growth exceeded the national average in three other provinces: the electronics industry generated vital growth stimulus in Carinthia. Salzburg benefited from good development in mechanical engineering and the electrical industry, while in Tyrol the wood processing industry and the pharmaceutical industry were driving factors. Only Vienna, Lower Austria and Styria were unable to profit from the support given by the somewhat firmer demand from abroad.

Momentum thanks also to services sector, but weaknesses in construction
The services sector enjoyed an encouraging first six months too. Retail sales rose at least slightly in all federal provinces. Trade was supportive particularly in Vorarlberg and Burgenland: the strength of the franc against the euro was of particular benefit in Vorarlberg via purchasing power from Switzerland. In tourism, a traditional area of strength in Austria, the number of overnight stays rose in the first half of 2015 by over 2 percent yoy. In addition to Vienna – which benefited from a boom in city tourism – the western Austrian tourism strongholds of Salzburg, Tyrol and Vorarlberg also benefited. Employment as an indicator for growth throughout the entire services sector is trending strongly upwards in nearly every province. "The services sector experienced mostly positive development in the first six months and was able to make a modest contribution to growth in nearly all provinces. But in Carinthia, little progress was made in this sector. In Burgenland, Styria, Salzburg and Vorarlberg though, the services sector displayed a noticeable upward trend", according to Pudschedl.

Despite a slight stabilisation in the course of the year, the construction industry proved to be a drag on economic activity in the first half year in almost all provinces. Year-on-year construction production declined by over 2½ percent in real terms. Companies’ restrained willingness to invest and the limited financial room for manoeuvre in the public sector had a dampening effect. "The construction industry in Burgenland, Vienna, Upper Austria and Salzburg experienced the strongest slump, stemming mostly from civil engineering. “Construction contributed positively to overall economic growth only in Carinthia and Styria", said Bank Austria economist Walter Pudschedl.

Second half of 2015 developing somewhat better
A slight improvement is expected by the end of the year from the construction industry in light of the more favourable jobs situation at present, but it is assumed that there will be at least a slight decline for the year as a whole in most states. By contrast, positive drivers are still expected in the coming months from the services sector. Moderate inflation due to persistently low raw material prices is boosting purchasing power, so we can expect an increase in sales in the retail sector. In some provinces the tourism industry is also breaking records. Despite the difficult global conditions, there are signs suggesting a continuation in the upward trend for industry in the coming months. With the ongoing recovery of the European economy at its back, the national average for industrial growth should increase in 2015 by around 2 percent in real terms.

"The global headwinds from growth markets are increasing, but the tailwind from the recovery in Europe will give the provinces more momentum through to the end of the year. Most provinces will still end this difficult year in 2015 producing higher growth rates than last year", said Bruckbauer, before adding: "Upper Austria will climb to the growth peak and, just like Burgenland, will grow much more strongly than Austria overall, for which we expect an increase in GDP by 0.9 percent". Salzburg and Tyrol will also achieve higher-than-average growth in 2015. All told, the economists at Bank Austria believe only two of the nine provinces will produce a weaker growth performance than in 2014: Vorarlberg and Tyrol, albeit from a high baseline figure in the previous year.

Unemployment rising more strongly in the east than in the west
Despite the moderate pace of recovery in the domestic economy, conditions on the labour market have tightened in the year to date in all provinces. The seasonally adjusted jobless rate for Austria rose to an average of 9.2 percent by September, which means average unemployment is 0.5 percentage points higher than at the start of the year. Economic trends still do not hold out the prospect of any stimulus for the labour market either. "We believe the unemployment rate in Austria will total an average 9.2 percent in 2015", declared Pudschedl, before adding: "The individual rates range from 6.0 percent in Salzburg to roughly 13.5 percent in Vienna." In 2015, the unemployment rate in all provinces will be higher than the previous year. The highest increases are to be expected in Vienna, Lower Austria, Burgenland and Styria due to the particularly strong increase in workforce potential.

2016: faster growth expected in provinces
Despite increasing risks, due to the economic downturn in some emerging markets such as China, the crisis in the Middle East or the burdens brought on by EU sanctions against Russia, the Austrian economy will remain on the road to recovery in the coming year and probably grow even faster than in 2015. "There are signs of an increased pace of growth. After the rise in economic output of 0.9 percent in 2015, we predict a modest increase to 1.5 percent for the coming year", said Pudschedl. The economy in most provinces will benefit in particular from two developments: on the one hand, consumption will be bolstered by additional stimuli due to the tax reform. On the other hand, more momentum can also be expected in foreign trade compared to 2015 in light of the continued steady recovery in Europe. Support in this context comes from the consistently low commodity prices, which put a damper on inflation and thus strengthen the purchasing power of households. The weak euro also ensures favourable conditions for exports. Consequently, there are robust growth prospects in 2016 for provinces with a distinct foreign trade focus, such as Vorarlberg, Upper Austria and Styria, as well as for classic service strongholds like Vienna and Salzburg. Most provinces should benefit from the conditions for a higher rate of growth, while the differences in growth between the individual provinces should be less pronounced in comparison with 2015.

 Charts (PDF; 241 KB)

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