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15.05.2019

UniCredit Bank Austria Business Indicator:
Intensifying headwinds from abroad continue to dampen Austria’s economy

  • The UniCredit Bank Austria Business Indicator drops again in April to 2.0 points – falling below its long-term average for the first time in almost three years
  • Challenges facing exports continue to increase and are again impacting heavily on domestic sentiment in April
  • Austria’s growth prospects remain unchanged at 1.4 per cent for 2019 and 1.3 per cent for 2020, but there are mounting risks due to the trade dispute between the U.S. and China
  • Relief for low-income earners will support the economy in 2020

The economic climate in Austria continued to deteriorate at the beginning of the second quarter of 2019. “The UniCredit Bank Austria Business Indicator sank to 2.0 points in April. Since reaching its all-time high of 4.5 points in December 2017, the indicator has fallen in 14 of the subsequent 16 months. In the meantime, it has reached its lowest value since the summer of 2016 and has fallen below its long-term average for the first time in almost three years,” says Stefan Bruckbauer, Chief Economist of UniCredit Bank Austria. The slowdown in the Austrian economic environment continues to be driven by the weakening global economy. “The continuing deterioration in the export environment is having a severe impact on business in the domestic sector. The rising challenges in April, however, have also had a negative impact on sentiment in other sectors of the economy. Domestic consumers are beginning to lose confidence,” explains Bruckbauer, highlighting the reasons behind the lower indicator value.

Optimism in Austria is waning

The global export sentiment indicator, weighted by Austrian foreign trade, fell to its lowest value in April since the summer of 2013, at the time when Europe was beginning its recovery from the eurozone crisis. A slowdown in the economic climate can be felt across most global regions. While trade tensions with the U.S. are causing political uncertainty in Asia, Brexit and the forthcoming European Parliament elections continue to be a burden in the European Union.

“Domestic sentiment is now being negatively impacted by the weakening international economy, even beyond export-dependent industries. However, there is still a prevailing optimism across all sectors. Given the full order books, the mood is particularly buoyant in the construction sector,” says UniCredit Bank Austria economist Walter Pudschedl. This confidence is also shared by the service sector. The positive sentiment can be attributed to the continuing above-average level of consumer confidence despite the downturn, supported by the sustained upward trend on the domestic labour market for the time being, with employment levels rising by around 2 per cent year-on-year and wage increases reaching around 3 per cent.

Economic growth driven by consumers

Domestic consumers, who in the first quarter of 2019 made the most significant contribution to GDP growth of 0.3 per cent compared to the previous quarter and 1.1 per cent year-on-year, will continue to provide strong and stable growth support for the Austrian economy during the months ahead. This means that private consumption is set to rise again by 1.5 per cent for 2019, especially since the introduction of the “Family Bonus Plus” has provided additional fiscal stimuli.

Investment activity, on the other hand, will lose considerable momentum. While the construction sector is providing a significant boost, weaker external demand continues to impact on investment in the equipment sector. Capacity utilisation in the domestic economy has slipped back to the long-term average, reducing the need for additional expansion investments.

“The outlook for the weakening global economy should improve again slightly in the second half of 2019, as a number of leading indicators now suggest. The Austrian economy is likely to regain some momentum from this support, following a relatively moderate start to the year. We continue to expect economic growth of 1.4 per cent for 2019 as a whole,” says Pudschedl.

However, the resurgence of the trade conflict between the U.S. and China carries the risk that the slight recovery seen in the global economy could be halted in the second half of the year. This will increase the risk of a U.S. recession in 2020 and therefore also impact on growth in Austria.

Domestic demand, particularly private consumption, should, however, keep the domestic economy on a fairly stable growth path. The economists at UniCredit Bank Austria expect the GDP in Austria to rise by 1.3 per cent in 2020. “In this respect, support for the domestic economy through the positive effects of the first stage of the planned relief measures, namely the reduction in health insurance contributions for low-income earners from the start of 2020, certainly comes at the right time,” says Bruckbauer.

Domestic factors are driving inflation above the eurozone average

The downside of this robust consumer growth is that inflation in Austria continues to be higher than in the eurozone. While inflation is expected to fall to 1.4 per cent in 2019 and 1.3 per cent in 2020 on the European scene, inflation in Austria will only be slightly below the 2 per cent mark in both years. After a slower start to 2019 due to lower energy prices, average inflation in the first four months of the year amounted to 1.7 per cent. For 2019 as a whole, we also expect inflation to rise by 1.7 per cent, rising to 1.9 per cent in 2020 despite weaker economic growth. High employment growth and increased wage developments are likely to put upward pressure on demand. On the other hand, the expected moderate increase in oil prices will slightly dampen inflation in 2020.

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Enquiries:              UniCredit Bank Austria Economics & Market Analysis Austria

                                Walter Pudschedl, Tel.: +43 (0)5 05 05-41957;

                                Email: walter.pudschedl@unicreditgroup.at