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15.03.2016

Bank Austria Business Indicator:
Global market turmoil and growth concerns hit economic sentiment in Austria

  • Bank Austria Business Indicator slips into negative territory in February
  • Improved consumer sentiment cannot compensate for the sharpest setback in industrial expectations since the 2008 crisis
  • Drop in sentiment only reflects the darker industrial mood as current production and order situation remains positive, despite modest declines
  • Global risks unsettling: outlook for export economy a worry
  • Yet no change in Bank Austria projection: GDP growth of 1.5 percent anticipated for 2016 – consumption the main growth pillar thanks to tax reform
  • Aggressive measures from ECB may offer partial support

Risks to the recovery in the Austrian economy have increased in recent weeks. Global uncertainties are weighing down on economic sentiment in Austria, which was still pointing upwards slightly at the turn of the year. "Concerns about the international economy are now impacting on sentiment in the Austrian economy. The ongoing uncertainty and geopolitical problems are making it increasingly likely that the negative effects will pop up in the real economy too. The Bank Austria Business Indicator reacted in February by slipping to -0.1 points, and therefore suggests that the very moderate economic recovery in Austria could slow down in the coming months", said Bank Austria chief economist Stefan Bruckbauer.

The more stable situation on the labour market and the tax reform are likely to have been contributing factors to the small improvement in consumer mood in February. However, this was unable to compensate for the sharpest fall in industrial confidence since autumn 2008, when the financial crisis erupted. "Bank Austria's Business Indicator slipping into negative territory in February is solely attributable to the weaker sentiment within Austrian industry", analysed Bruckbauer. The international climate is not helping. European industrial confidence weighted with the share of Austrian trade has deteriorated somewhat, but it remains better than the average and promises largely steady support for growth in Austrian industry. By contrast, however, the assessments of Austrian producers pushed Bank Austria's Business Indicator down. Industrial sentiment in Austria worsened during February to a greater extent than in all other EU countries. Taking a glance at the details though provides some hope that the deterioration in industrial sentiment in Austria does not necessarily have to seep through to economic activity. The dramatic drop in sentiment is only reflected in expectations as the current production and order situation remains positive, despite modest declines

The economy continues to make hesitant upwards progress for now, even if the sentiment in Austria is hampered by global growth concerns. "We believe the Austrian economy made marginally better progress in the early months of this year than in the last quarter of 2015. However, it is increasingly dubious whether the good start to the year can be continued", said Bank Austria economist Walter Pudschedl. The risk of the uncertainties and the fragile development in emerging markets impacting on economic development in industrialised countries has grown, since demand from abroad could fall short of expectations to date. Nonetheless, the economists at Bank Austria assume that any possible real economic implications for the Austrian economy brought on by the uncertainty can be compensated for by the additional impetus to consumption triggered by the tax reform. Economic growth for 2016 as a whole is therefore still predicted at 1.5 percent, and is thus somewhat faster than in the previous year.

Calm on labour market only temporary
The modest upwards trend in Austrian economic activity resulted in a calmer labour market during the first few months of 2016. The seasonally-adjusted unemployment rate has been stuck at just over 9 percent since the autumn. "We assume that the current stability on the labour market will be short-lived. Alongside the moderate improvement in growth, the mild weather is the main reason for the temporary interruption in the deterioration of labour market data. Since the labour supply will continue to grow in the coming year, we still foresee an increase in the unemployment rate up to even 9.5 percent on average for 2016", said Pudschedl.

ECB fuels hopes
Given the low inflation outlook and the weak demand for loans, the European Central Bank has announced further unconventional measures to loosen monetary policy. "I believe the ECB has recently adopted a surprisingly aggressive package, switching the focus to what really counts: making low-cost financing available to the real economy", said Bruckbauer. Expanding the purchase of corporate bonds and above all the additional liquidity measures for banks are promising instruments that can help businesses, especially small and medium-sized businesses, obtain favourable financing conditions amidst the difficult regulatory environment for banks. The renewed decrease in the deposit interest rate, however, could prove to be counter-productive. The economists at Bank Austria reckon the easing of monetary policy will trigger no significant impacts via exchange rates. Although the euro is expected to be volatile in the coming months, we should see its current undervaluation against the US dollar undergo a correction. We anticipate a stronger euro by the end of this year than at the end of 2015.

tables (PDF; 222 KB)

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