UniCredit Bank Austria Business Indicator:
Austrian economy with momentum through summer: highest economic growth since 2011 in sight

  • UniCredit Bank Austria Business Indicator above the 3 point mark in May for the first time in six years
  • Strong first half of the year leads to a rise of more than 2% in GDP in a year-on-year comparison
  • Continuing high consumption and a stable upturn in exports will provide further momentum in 2017 and promise the highest economic growth rate since 2011
  • Job market profiting from the upswing, with a decreasing unemployment rate for the first time since 2011
  • High increase in inflation at an end: inflation rate will stabilise in the second half of the year at just under 2%, average rate of 1.8% expected over the year

After the strong start to the year with economic growth of 2.3% in a year-on-year comparison, the business barometer in Austria is still pointing upwards. "The UniCredit Bank Austria Business Indicator continued its upward trend, which has been very noticeable since autumn 2016, and actually reached 3.2 points in May, i.e. the highest level since May 2011", said UniCredit Bank Austria Chief Economist Stefan Bruckbauer. The economic situation has improved substantially in the last few months. Compared with the previous month, every economic sector is now reporting at least an equally good situation and a mostly more optimistic economic assessment for the coming months. "The continuing upward trend in the UniCredit Bank Austria Business Indicator right across all economic sectors is an indication that the high growth rate at the start of the year could at least be maintained in the second quarter of 2017. We are therefore expecting a rise of more than 2% in GDP for the first six months of 2017", said Bruckbauer.

The continuing strength of the economic recovery in Austria in the second quarter of 2017 is firstly due to the improved tailwind from abroad and secondly to the unabated high level of domestic demand. As expected, export business has been very dynamic in the last few months. The positive economic development in the euro zone with an upturn in core countries and at the periphery is providing a further boost. The majority of countries in Eastern Europe, which maintain close economic relations with Austria, are benefiting in this respect. The recovery on non-European growth markets is also being consolidated. Due to high export demand, Austrian companies are increasing their investment activity.

However, the still buoyant domestic demand is mainly attributable to the high level of private consumption. "The undiminished rate of growth in the Austrian economy in the second quarter, i.e. an estimated rise of more than 2% compared with 2016, exceeded our original expectations. Whereas export business, as expected, provided a major boost, the continuing strength of private consumption was surprising. The clear upward trend on the job market compensated for the decreasing impact of the tax reform last year", said UniCredit Bank Austria Economist Walter Pudschedl.

According to the subcomponents of the UniCredit Bank Austria Business Indicator, the Austrian economy will continue to develop very positively in the next few months. In particular, domestic consumers became even more optimistic at the end of the first six months of the year. Due to the easing of tension on the job market, consumers regard their own financial situation as having improved and are thinking about additional purchases. Service providers and the construction industry are also in high spirits thanks to a good order situation which promises to create more jobs. By contrast, the mood in domestic and international industry recently stopped improving, but is still relatively stable at a 6-year high.
Job market profiting from the strong economy
The strong economic upturn this year is reflected in a considerable year-on-year increase in employment averaging 1.7% in the first six months. Since the labour supply is also no longer rising as much as in the previous year, the unemployment rate has dropped for the first time since 2011. At a seasonally adjusted figure of 8.6%, however, the unemployment rate has now only dropped to the level at the end of 2014. The unemployment rate is therefore a whole 2 percentage points about the figure from 2011 before it started to increase as a result of the sovereign debt crisis in Europe and the opening of the Austrian job market to the new EU member states. The UniCredit Bank Austria Economists are expecting an average annual unemployment rate of 8.7% in 2017 after 9.1% in the previous year.

Inflation in the second half of the year slightly lower than at the start of 2017
After the pronounced increase since autumn 2016, the inflation rate has now stabilised at around 2% in a year-on-year comparison. The first quarter of 2017 brought a complete standstill in the upward pressure on prices due to the recovery in oil prices and current influencing factors such as foodstuffs on account of crop failures. Although the OPEC agreement to cap oil production in May was extended by a further nine months, oil prices have not risen. In the next few months the supply of oil from other countries will also probably be sufficient to prevent the oil price from rising substantially in spite of the growing demand due to the economic situation.

It is therefore likely that energy prices in Austria will actually lead to a lower inflation rate in the second half of the year. Factors in the domestic economy will also continue to play an insignificant role in the growth in inflation. After average inflation of 2% in the first five months, it will therefore be lower in the second half of the year." Although the oil price is now no longer regarded as a factor behind rising prices, inflation in Austria in the next few months will not return to the low level seen in 2016. That's because food prices are continuing to rise and the still discernible upward pressure in some services is persisting. With inflation that is slightly lower in the second six months than at the start of the year, we are expecting an average inflation rate of 1.8% in 2017", said Bruckbauer. Harmonised consumer price inflation will probably still be slightly higher at an average of 2%, i.e. for the ninth year in succession above the euro zone average which is expected to be 1.7% in 2017

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