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15.09.2016

Bank Austria Business Indicator:
Austrian economy losing some momentum, inflation rate to remain under 1 per cent in 2016

  • Economy losing momentum again after the summer: Bank Austria Business Indicator drops to 0.8 of a point in August
  • Solid growth in the Austrian economy despite slight weakening
  • Worries over Brexit having an effect; mood in European industry and among Austrian consumers more pessimistic than in the previous month
  • Thanks to a solid third quarter, unchanged economic growth rate of 1.5 per cent still possible despite anticipated weak dynamism at the end of 2016
  • 1.1 per cent rise in GDP in 2017 projected to be lower than in the previous year
  • Tax reforms and low oil prices leading to the highest growth in consumption for ten years

The Austrian economy is losing momentum. "After the modest recovery during the summer, the Austrian economy is now starting to show signs of a slight slowdown in growth. Following three increases in succession, the Bank Austria Business Indicator decreased slightly in August. At its current reading of 0.8 of a point, the Indicator signifies a sustained recovery, albeit slightly lower than in the past few months", reported Stefan Bruckbauer, chief economist at Bank Austria. The pronounced fall in the Bank Austria Business Indicator in August is probably attributable, for example, to the first traces of uncertainty caused by the Brexit decision in the United Kingdom. "In particular, the more pessimistic mood among the European trading partners of Austrian industry dragged the Bank Austria Business Indicator downwards. This is an indication of the first negative impacts on the real economy due to the impending British withdrawal from the European Union", said Bruckbauer.

The most recent foreign trade and industry data for EU member states were disappointing. The much more negative industrial sentiment in Austria's most important trading partners, primarily Germany, reflects the weaker real economic figures. "Especially in countries with a high level of exports to the United Kingdom, industrial companies are becoming more worried while the mood in Austrian industry has actually improved to a slight extent at present due to solid domestic demand. However, consumer optimism in Austria was again slightly lower in August", said Bank Austria economist Walter Pudschedl. All in all, the sentiment indicators were therefore generally the main reason why the Bank Austria Business Indicator declined slightly in August.

In spite of the moderate decrease, the Bank Austria Business Indicator in August still points to a solid rate of growth in the Austrian economy. "After the restrained spring, the economy revived in summer. According to our estimate, economic growth in the third quarter therefore exceeded the weak dynamism in the previous quarter. Due to the strong start to the year and the good summer months in reserve, we are still anticipating a rise of 1.5 per cent in GDP for 2016 as a whole", said Pudschedl. The economic downturn now shown in the Bank Austria Business Indicator is partly due at least to the imminent withdrawal of the United Kingdom from the European Union. The negative effects of Brexit will become more noticeable from the final quarter of 2016 onwards. "Depending on when Brexit takes place and the outcome of the negotiations, economic growth in 2017 will be noticeably lower. After a very restrained first quarter in 2017, growth momentum in Austria should start to pick up again in the following months with the result that Brexit will probably only have moderate consequences for the Austrian economy. However, the increase in GDP for 2017 as a whole (1.1 per cent) will be lower than in the previous year", said Pudschedl. In addition to foreign trade, investment activity will primarily be affected. Under these general conditions, consumption in Austria, which had been strengthened by the tax reforms in 2015, will continue to be more subdued and will not be able to compensate for the negative effects.

Inflation below 1 per cent and tax reforms leading to the highest growth in consumption for ten years
In a year-on-year comparison, the average rate of inflation in Austria in the first nine months was only 0.8 per cent. The anticipated substantial rise in inflation from the middle of the year onwards has not yet occurred since new emerging economic fears, e.g. due to the Brexit decision, had very little effect on crude oil prices. In view of a relatively stable oil price of just under $50 a barrel up to the end of the year, only a basic effect due to the considerable fall in the price of oil last year will cause inflation to rise in autumn. Although the rate of inflation in Austria will be just over 1 per cent by the end of the year, it will probably be less than 1 per cent as an annual average just like in 2015. "The low oil price and the tax reforms helped consumption in Austria, and we are expecting the highest increase in consumption for ten years in spite of the slight scepticism among consumers", said Bruckbauer. Nevertheless, the rise in consumption in 2016 will also be much lower than the increases before the crisis, especially if the rapidly growing population is also taken into account. Even if the average inflation rate for 2016 as a whole remains under 1 per cent, it will again exceed - for the eighth year in succession - the likely average value of 0.2 per cent for the euro zone. In a direct comparison, the higher rises in prices for housing and tourism in the current year are primarily the main reason for the difference which has added up to a total of 4.5 per cent since 2009.

 charts (PDF; 230 KB)

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