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Bank Austria Business Indicator:
Austria still on a growth path

  • Austrian economy maintains a moderate growth path: Bank Austria Business Indicator in September remains unchanged at 0.8 points compared with the previous month
  • Improvement in industry offset by a more gloomy mood among consumers
  • Expected growth rate for 2016 therefore unchanged at 1.5%
  • Due to a decrease in domestic demand and a subdued export environment, the rise in GDP in 2017 (1.1%) will be lower than this year
  • Increasing labour supply will also lead to an increase in the unemployment rate to 9.4% in 2017
    Higher inflation from October onwards due to a trend change in raw material prices

Although the growth path of the Austrian economy has lost some of its momentum since the summer, it is still solid in spite of growing economic risks. "The Bank Austria Business Indicator did not change in September when compared with the previous month. Standing at 0.8% points, the Indicator is still an expression of solid growth in the Austrian economy. Compared with the summer, the speed of recovery has barely slowed down", says Stefan Bruckbauer, Chief Economist at Bank Austria. In the third quarter of 2016, the Bank Austria Business Indicator therefore registered an average value of 0.9 points after just 0.4 points in the previous quarter. "Due to the substantial rise in the Indicator in the third quarter, we are anticipating higher economic activity for this period than in the spring. Based on our calculations, the very slight growth of 0.1% in GDP in the second quarter was significantly exceeded in the summer months", says Bruckbauer with optimism.

The solid growth in the Austrian economy in the third quarter was solely attributable to domestic demand. The upturn in the retail trade shows that consumption made a positive contribution based on positive effects produced by the tax reform at the start of the year and the continuing low rate of inflation caused by stable development in raw material prices. "Both consumption and investments remained buoyant during the summer and led to a rise in GDP by up to 0.4% compared with the previous quarter. If the moderate development in export orders is used as a yardstick, however, foreign trade was still unable to contribute to economic growth in Austria", says Bruckbauer.

There will be very little change in the existing growth pattern in Austria during the next few months. However, the strong third quarter will probably be followed by a slightly weaker final quarter in which the growing economic uncertainties, for example Brexit and the US presidential election, will produce negative effects. "The Austrian economy is still heading for an annual average growth rate of 1.5% in 2016. After considering the slight fall in foreign trade, consumption accounts for around two thirds of this growth and the recovery in investments one third", says Bruckbauer.

Domestic demand will also remain the driving force behind the economic recovery in 2017. However, this recovery will continue at a slower pace. One of the reasons for the slightly lower growth in the domestic economy next year is private consumption which should become less dynamic. The positive effects of the tax reform will become weaker and the benefit of low inflation will decrease. The mood among consumers, which has now become gloomy again after a short-term improvement in the summer, could well be the first portent of this lower dynamism. Companies will also be less likely to invest due to uncertainties such as the imminent Brexit and continuing geopolitical tensions. Although the prospects for building investments are favourable, assets investments will not be able to maintain the momentum from 2016. The mood in the export-oriented industry in Austria improved in September since there was increased confidence in the industry throughout the EU with the exception of the United Kingdom. Although the growth expectations of EU member states are lower for 2017, the prospects for other export markets are much better. A more favourable economic climate is therefore expected in many developing countries in 2017. Foreign trade will also probably stifle growth in the Austrian economy in 2017, albeit at a lower level than this year, since exports will only rise very slightly. "Due to the fall in consumption, negative impacts on investment activities caused by the United Kingdom's imminent exit from the EU, and rising protectionist trends in global trade, economic growth in 2017 will be lower than this year. We are expecting a 1.1% rise in GDP in 2017", says Bank Austria economist Walter Pudschedl.

Unemployment rate in 2017 will be higher again at 9.4%
The economic recovery in 2016 has had a positive effect on the Austrian labour market. In spite of a 1.4% increase in employment to date compared with the previous year, the unemployment rate has not dropped since the labour supply has also risen. "The average unemployment rate in the first nine months of 2016 was 9 per cent. This unchanged value compared with the same period in 2015 is due to two contrary effects: a positive economic effect and a counteracting labour supply effect. If the labour supply had remained constant in 2016, the improved economic situation would have reduced the unemployment rate to 7.7% according to our calculations", says Pudschedl.
Since more women and older workers are still entering the labour market and immigration will continue to have an effect, a further rise in the labour supply is expected in 2017. The slight economic slowdown will probably lead to an increase in the unemployment rate. The Bank Austria economists are anticipating a rise in the unemployment rate to an average of 9.4% in 2017 compared with 9.2% this year.

Inflation set to rise
Compared with the previous year, the average rate of inflation in the first nine months of 2016 was only 0.8%. . From October 2016 onwards, inflation in Austria will slowly start to increase. Firstly, the dampening base effect caused by the considerable drop in the price of oil one year ago is now coming to an end. Secondly, there are signs of a trend change in raw material prices. For example, the oil price has now permanently topped the figure of $50 dollars a barrel. "We expect the rate of inflation to slowly rise to just under 1% by the end of the year. The average rate for 2016 as a whole will therefore be 0.9%. In 2017 we believe that raw material prices will only increase to a slight extent. We are therefore anticipating an average inflation rate of 1.8%", says Pudschedl.

 Graphs (PDF; 204 KB)

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