UniCredit Bank Austria National Economics Federal States Analysis 2017 and Outlook 2018: Strong federal state growth thanks to industry, export and consumption

  • All federal states have increased their growth rate compared to 2016
  • Industrial strongholds Upper Austria and Styria benefited the most from the global upturn
  • Continuing strength of consumption also provided strong growth support for service-oriented federal states such as Vienna and Salzburg
  • In 2017, the unemployment rate fell sharply in all federal states in part: The percentage decline was strongest in Styria and Tyrol
  • Outlooks 2018: Slightly weaker growth of 2.8 percent is expected for Austria, the growth advantage of the industrialised federal states will decline slightly
  • The research intensity of the federal states has a significant influence on future regional economic growth

Austria recorded its strongest growth since 2007, with real GDP growth of 3 percent in 2017. “Economic recovery gained significant momentum in 2017 and covered all sectors. In this significantly improved economic environment, all federal states of Austria have increased their growth rate compared to 2016,” says UniCredit Bank Austria Chief Economist, Stefan Bruckbauer. In particular, the more industrially oriented federal states benefited from the global upturn, as a result of their higher export orientation. Due to the continuing strength of consumption, many service areas also expanded and provided growth support for service-oriented federal states.

Industrial regions with high export quota at an advantage
The domestic industry recorded the strongest growth since 2011, with an increase in value creation of 6.7 percent in 2017. “The top position in economic growth in 2017 in Austria, up 3.7 and 3.6 percent, have taken over the two industrial strongholds through the global upturn with Styria and Upper Austria,” said UniCredit Bank Austria Economist Robert Schwarz.

Likewise, Tyrol and Burgenland recorded significant above-average growth of 3.5 percent and 3.3 percent respectively, during the previous year. Tyrol benefited from strong growth in the production sector and a very good tourist season supported the services sector. Industry and primarily the construction industry were the strongest growth drivers in Burgenland. The regional economy grew by 3 percent in Carinthia and Vorarlberg and 2.9 percent in Lower Austria in the nationwide average. In these federal states, industry was the biggest growth driver and service sector dynamics were relatively weak in the three federal states. With Vienna and Salzburg, two federal states with a strong service orientation are at the bottom of the ranking, but with economic growth of 2.6 percent each, they are not far behind the leaders. The continuing strength of consumption and a good number of overnight stays in tourism provided strong growth support here.

The global economic upturn provided a strong revival of foreign demand. In Austria, exports of goods rose by 8.2 percent to EUR 141.9 billion in 2017. The biggest profiteers of this exceptionally high export momentum were Upper Austria, Lower Austria and Styria.

The construction industry continued upswing
The improvement in the construction sector in 2016 continued in 2017. The value creation of the construction industry rose by 2.5 percent in real terms. While building construction and the construction industry significantly expanded, civil engineering saw a slight decline in production. The construction industry made a noticeably positive contribution to the overall growth, especially in the federal states of Burgenland and Tyrol. By contrast, construction in Salzburg and Vienna deflated economic growth.

Furthermore, continued high growth rate in 2018 with increasing risks
Given the positive start to the year, the Austrian economy is expected to maintain the high growth rate of the previous year in the first half of 2018. However, as the year progresses, the momentum will somewhat level off. Nevertheless, at 2.8 percent Austria’s economic growth will be very strong in 2018. Additional risks such as the uncertainties surrounding protectionist tendencies in global trade may accelerate the expected economic slowdown.

“In the still favourable economic environment, most of the federal states will not be able to increase their growth rate, but will again be able to achieve high economic growth. Once again, we are assuming a clearly above-average performance by Styria and Upper Austria, while the eastern federal states and Carinthia are likely to grow slightly below the Austrian average”, says Bruckbauer.

Unemployment is decreasing across the board
The economic boom in all federal states was also reflected in the labour market. The average unemployment rate in Austria was 8.5 percent in 2017, following the rate of 9.1 percent in 2016. “For the first time since 2007, all federal states recorded a decline in the unemployment rate in the previous year. The percentage decline in the unemployment rate was greatest in Styria and Tyrol,” says Schwarz. In the previous year, Salzburg had the lowest unemployment rate at 5.3 percent and Vienna had the highest at 13 percent.

Very different research quotas in the federal states
Research expenditure in Austria in 2017 amounted to EUR 11.7 billion or 3.16 percent of GDP. This places Austria well above the average in OECD countries with around 2.4 percent. At federal state level, the research quota (2015) ranges from 5.16 percent in Styria to 1 percent in Burgenland. In the period from 2002 to 2015, the quota rose in all federal states, with private research expenditure developing much more dynamically than public investments with universities and government research institutions. “Statistical analyses show that a high research quota had a positive effect on the economic growth of a federal state. For example, an increase in the research quota of 10 percent results in an increase in gross domestic product of 0.4 percent per capita,” explains Schwarz.

The current analysis of UniCredit Bank Austria “Federal States Overview 2018” is available free of charge on the Bank Austria homepage at the link https://www.bankaustria.at/boersen-und-research-wirtschaft-online--analysen-und-research-oesterreich-bundeslaender.jsp

Enquiries: UniCredit Bank Austria Economics & Market Analysis Austria
Robert Schwarz, Tel. +43 (0)5 05 05-41974;
Email: robert.schwarz@unicreditgroup.at