UniCredit Bank Austria Business Indicator:
Austrian economy carries its momentum into autumn
- UniCredit Bank Austria Business Indicator points to continuing strong dynamism in the Austrian economy despite a slight decrease to 3.3 points in August
- Economic peak reached at the start of autumn: pace of growth unlikely to increase
- Lower domestic demand, no additional impetus from exports
- Rise in GDP in 2018 will remain slightly lower than the economic growth rate of around 2.5% in 2017
- Labour market benefiting from the strong economy: unemployment rate will also fall in 2018
The economic high in Austria is still continuing. “The upturn in the domestic economy was sustained beyond the summer. In August the UniCredit Bank Austria Business Indicator reached 3.3 points, i.e. the second highest figure for six and half years”, said UniCredit Bank Austria Chief Economist Stefan Bruckbauer and added: “However, the first slight decrease in the Indicator in a monthly comparison for one and half years probably shows that the Austrian economy has reached its peak at the start of autumn. The pace of growth will cease for the time being.”
Although the mood in the Austrian economy is still extremely positive, it is stabilising in individual sectors. The uniform upward trend in the individual components of the UniCredit Bank Austria Business Indicator over the last few months is no longer continuing everywhere at present. “Whereas the mood in the construction industry improved slightly once again at the start of autumn, the optimism in the service sector slipped considerably. The business prospects in domestic industry are also no longer regarded quite so positive as they were in summer. However, the economic mood in Austria is still well above-average”, said Bruckbauer.
Tailwind from abroad and solid domestic demand
The Austrian economy is still profiting from the economic tailwind from abroad. Global industrial confidence weighted by the Austrian foreign trade shares rose in August to the highest value for more than 6 years. This was primarily due to the stable upturn in Europe which is based on an increasingly broader foundation. Both the major core countries such as Germany, France and Italy and the growth markets in Central and Eastern Europe are delivering positive impetus for the domestic export trade. Especially in some neighbouring countries of Austria, e.g. the Czech Republic and Slovakia, the strong economy is also supporting the demand for products “Made in Austria”. Domestic industry is also still benefiting from the sustained momentum in the USA and the upsurge in many emerging markets although this will probably no longer become stronger.
“The support being provided to the Austrian economy by international business is proving to be durable and will probably remain strong in the next few months. However, it will hardly increase any more. Based on the available data, we firstly believe that the growth in world trade will stabilise at around 5% in a year-on-year comparison. Secondly, the strength of the Euro is having an adverse effect on domestic exporters although the related consequences will remain manageable”, said UniCredit Bank Austria Economist Walter Pudschedl. Exports, which underpinned economic growth in Austria in the first six months of the year, will be able to make at least a stable contribution towards higher GDP in spite of new geopolitical risks such as the North Korea crisis.
However, the main decisive factor for economic momentum in the next few months will be further growth in domestic demand which, with a contribution of around 90% in the first six months of 2017, accounted for the largest proportion of the strong economic growth of 2.4% in Austria in a year-on-year comparison. As a result of a strong focus on exports in the Austrian economy, there is a close connection between export dynamics and investment growth. In light of the favourable export climate, we can also expect to see energetic investment activity over the next few months.
The rise in building investments should also largely continue on account of the good order situation while the positive trend in equipment investments is also likely to be sustained without hardly any decrease. However, private consumption will probably slow down sightly. The impetus from the tax reform in 2016 will cease. Since Austria has a high inflation rate (average of almost 2% year-on-year) compared with other European countries, the favourable employment trend will probably not produce sufficient increases in income to fully compensate for this.
The UniCredit Bank Austria Business Indicator shows that the Austrian economy has attained the highest growth phase in the current economic cycle at the start of autumn. “The speed of growth will remain high over the next few months. However, foreign demand is not expected to create any additional momentum. Domestic demand, especially private consumption, will therefore lead to a slight tapering off of growth momentum. Following the biggest rise in GDP for six years, i.e. 2.5% in 2017, economic growth in 2018 will therefore probably be lower than this year's figure”, anticipated Pudschedl.
Employment market still profiting from the economic recovery, but fall in the unemployment rate is restrained
At the start of autumn, the seasonally-adjusted unemployment rate dropped to 8.5% after an average of 9.1% in 2016. This substantial decrease was mainly due to the strong rise in employment averaging 1.8% in a year-on-year comparison. On a seasonally-adjusted basis, around 60,000 new jobs have already been created in Austria since the start of the year. “The reduction in the unemployment rate compared with the rest of Europe started later and has also been relatively slight to date due to the strength of the economic recovery. This is attributable to the continuing significant rise in the labour supply. With a labour supply that has not changed since the start of the year, the unemployment rate of only just under 7% would be 1.5% lower than the actual current value”, said Bruckbauer.
In a yearly average for 2017 the UniCredit Bank Austria economists are expecting an average unemployment rate of 8.6%. Further easing on the labour market in 2018 is now anticipated due to the continuing strong economic recovery. However, the decrease in the unemployment rate will slow down to 8.4%. As a result of the slight slackening of the economy, growth in employment will be slightly lower than in 2017 and will outweigh the continuing flow of additional manpower to a lesser degree.