Bank Austria Business Indicator:
Marked recovery at the end of the year - economy will retain its momentum in 2017
- Bank Austria Business Indicator now standing at 1.9 points, the highest level since summer 2011
- The best comes at the end: highest rate of economic growth in 2016 in the fourth quarter
- GDP in 2016 will rise to 1.5% due to a buoyant end to the year
- Good start to the new year: economic forecast for 2017 increased to 1.6%
- In spite of a stronger economy and a one per cent increase in employment, the unemployment rate in 2017 will rise slightly to 9.3% on account of the higher labour supply
- Raw material prices will lead to a pronounced increase in the rate of inflation to 1.8% in 2017
The recovery in the Austrian economy is gaining momentum. "The Bank Austria Business Indicator has clearly shown an upward trend since spring 2016. It reached 1.9 points in November, i.e. the highest level since summer 2011. The highest economic growth rate this year is therefore expected in the final quarter", said Bank Austria Chief Economist Stefan Bruckbauer. After the substantial increase in October, another slight improvement in November and the positive indications, it is anticipated that the Bank Austria Business Indicator will show an average value of just under 2 points in the last quarter of 2016. "In an annual comparison, the Bank Austria Business Indicator assumes an economic growth rate of around 1.8% for the fourth quarter of 2016. This dynamic end to the current year should enable GDP to rise by 1.5% overall in 2016. This represents a pleasing increase compared with the economic growth rate of 1% in 2015", said Bruckbauer.
Following a very moderate upward trend at the start of 2016, the economic mood in Austria has improved considerably towards the end of the year. "In addition to an improved mood in industry, the Austrian economy is also now benefiting from the positive effects of the tax reform and low inflation on consumers' purchasing power. The service sector and the construction industry are receiving a boost", stated Bruckbauer.
The faster rise in the economic mood in Austria at the start of the last quarter of 2016 has a broad basis: domestic industrial companies are becoming increasingly more optimistic about the future, a view that has been supported by an improved mood in global industry in the last few months. Both industrial confidence in Austria and weighted global industrial confidence in Austrian foreign trade were well above the long-term average in November. The worries over the imminent Brexit were initially set aside while the election of Donald Trump as the next American President is now regarded as positive since it is hoped that the US economy will be fuelled by an offensive fiscal policy. The hitherto very negative mood among Austrian consumers is also improving due to the stabilisation of the situation on the labour market. This is reflected in a more positive assessment of the economic prospects by service companies. Due to the healthy growth in orders, which levelled out slightly in November, the mood in the Austrian construction industry continued to be as positive as it was before the start of the financial crisis in 2008/2009.
Growth forecast for 2017 increased
"The Austrian economy will start 2017 in a vibrant state, and the positive trend should also continue as the year progresses. We have increased our growth forecast for 2017 from 1.1% to 1.6%", said Bank Austria Economist Walter Pudschedl. However, the forthcoming negotiations regarding Brexit, economic policy surprises during the term of the American President Donald Trump and imminent elections in Europe (e.g. in France and Germany) harbour potential for disappointments. Although domestic demand will remain the driving force in 2017, it will probably be slightly lower than in 2016. The effects of the tax reform will decrease. The positive impact of low inflation will decline. Since wage settlements will not fully compensate spending power, the consumption growth rate will slow down slightly in 2017. Investments, influenced by the more risky global environment, will also probably not be quite so dynamic as in 2016. In particular, equipment investments will not be able to match the level in 2016. However, the prospects for building investments remain favourable and the order situation in building construction is good.
Whereas the very accommodating monetary policy of the ECB will continue and still ensure low lending interest rates, the momentum caused by the tax reform, the low raw material prices and the weakening of the Euro will diminish or will even be partially reversed in 2017. Stabilisation of growth dynamism will therefore depend on a recovery in global growth and foreign trade. Higher growth in the USA and improved economic indicators in some emerging countries are expected to produce at least a moderate boost. Increasing protectionist tendencies or another weak year in emerging countries represent, however, uncertainties which can definitely be rated as higher than in 2016.
After stabilising in 2016, the unemployment rate will again rise slightly in 2017
The speed of the economic recovery in 2016 helped to stabilise the situation on the labour market. "The upward trend in the unemployment rate, which started in 2011, was interrupted in the current year. At 9.1%, the annual average unemployment rate in 2016 will be just as high as in 2015. In spite of a stronger economy and a 1% increase in employment on account of the higher labour supply, it is expected that the unemployment rate in 2017 will again rise slightly to 9.3%", said Pudschedl. After the substantial rise in employment (1.5%) in 2016, it is anticipated that employment will also increase by more than 1% in 2017 due to the creation of 40,000 additional jobs. Depending on how much the labour supply from home and abroad increases, the unemployment rate could peak at 9.3% in 2017.
Inflation on the rise
In spite of the increase in inflation since autumn, the average annual inflation rate in 2016 (0.9%) will generally be as low as in 2015. However, the upward trend will still continue due to the increase in raw material prices in the coming months. Following the agreement by OPEC to cut production, there is a risk that the oil price could rise significantly. "The inflation rate in Austria will touch 2%, primarily on account of the rise in raw material prices, but also due to the continued high price movements in some services and rents, especially in the first six months of 2017. As an annual average, we expect inflation to rise to 1.8% in 2017", said Pudschedl.
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Enquiries: Bank Austria Economics & Market Analysis Austria
Walter Pudschedl, Tel. +43 (0)50505 - 41957;