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UniCredit Bank Austria Business Indicator:
After an economic low in 2020, a slight recovery is expected in 2021

  • The UniCredit Bank Austria Business Indicator once again only reached 1.4 points in December 2019; the indicator remained unchanged at a four-year low compared to the previous month
  • The recession in industry pushed economic growth to around 1 per cent year on year in the last quarter of 2019; the increase in GDP is expected to be only 1.5 per cent for 2019 overall, compared to 2.4 per cent in 2018 
  • The ongoing global economic slowdown shall limit economic growth in Austria to 1 per cent in 2020. A gradual recovery is anticipated in 2021
  • For the first time since 2015, the unemployment rate will slightly increase to 7.5 per cent in 2020 
  • After an annual average inflation rate of 1.5 per cent for 2019, inflation forces will continue to be hardly noticeable; furthermore, a moderate oil price shall support low inflation of 1.5 per cent in 2020 and 1.8 per cent in 2021

The economic situation in Austria has remained largely unchanged for around half a year. “After the sharp drop in the first few months, the economic mood in Austria has stabilised since the middle of 2019. The influence of weaker global trade has dampened the domestic economy, which is experiencing significantly less momentum compared to the past three years. At 1.4 points, the UniCredit Bank Austria Business Indicator remained at the four-year low of November at the turn of the year 2019/20,” states UniCredit Bank Austria Chief Economist Stefan Bruckbauer. 

On average, the UniCredit Bank Austria Business Indicator stood at 1.4 points in the final quarter of 2019, marking the weakest economic growth of 2019 to end the year. The recession in industry was offset more heavily than in previous periods by economic sectors that performed well, such as the services and construction sector. “We assume that economic growth in Austria continued to slow down to around 1 per cent year on year in the fourth quarter of 2019. Following an average GDP growth of 1.8 per cent in the first three quarters, we estimate an annual average GDP increase of 1.5 per cent for 2019. This marks the weakest growth momentum recorded since 2015,” explains Bruckbauer. 

Positive signs
“At the turn of the year, economic sentiment in Austria was at its lowest level in four years; however, if you look in more detail, it is showing a slight upward trend. Both industrial sentiment and the mood of Austrian consumers has brightened somewhat,” says Bruckbauer. After the trade conflict between the US and China had shown signs of easing and uncertainty regarding the United Kingdom’s exit from the EU had abated temporarily, the outlook for the domestic industry was slightly less pessimistic in December. Austrian businesses are facing particular challenges from the ongoing slowdown in certain areas of German industry. However, overcoming the low point in global trade momentum in the meantime should have a positive impact. In light of the continued favourable situation in the domestic labour market, domestic consumers’ optimism slightly increased again at the turn of the year. In comparison, sentiment continues to deteriorate in the services sector, which has since fallen to a little below the long-term average. Positive sentiment is even beginning to taper off noticeably in the construction industry, although high capacity utilisation and the good profit situation are keeping the strong momentum going in the construction sector under continued favourable financing conditions.

Economic low in 2020
The Austrian economy entered 2020 significantly more cautiously than in 2019. The division in the economy is largely characterised by the slowdown in the global economy, on the one hand, and strong domestic demand driven by private consumption, on the other. Following the stabilisation and signs of easing of global trade that are currently underway, a slight slowdown in the international economy is expected in 2020. The cyclical downturn in the US is being driven by ongoing trade barriers and declining corporate profitability, resulting in the risk of a recession in the US in the second half of 2020. 

There are also signs of a slight slowdown in the export-orientated Austrian economy, with a decrease in foreign trade impacting investment momentum. In addition, capacity utilisation is already declining due to a low level of new business and is reducing the need for expansion investments. Despite continued favourable financing conditions, a slump in equipment investments in particular is therefore expected in 2020, while investments in construction continue to drive growth, albeit with less force. Consumption will therefore be the determining growth driver of the Austrian economy in 2020. Development in the labour market is contributing to this, with a further increase in employment and noticeable real wage growth. However, additional fiscal stimuli, including a reduction in health insurance premiums for low-income earners, a significant rise in retirement pay and the value adjustment in care allowance, will be unable to prevent a slight slowdown in consumer spending. 

“With an increase in GDP of 1 per cent, we believe that 2020 will mark the low point of the current economic cycle. An economic turnaround in Austria via the global economy is only expected to take place towards the end of 2020, which is set to bring about a moderate recovery in 2021, accelerating economic growth slightly to 1.3 per cent,” says UniCredit Bank Austria economist Walter Pudschedl. 

Reversing trend in the labour market 
As a result of the good economic situation, the average annual unemployment rate has decreased in recent years from more than 9 per cent to 7.4 per cent in 2019. Over the course of 2019, the upward trend slowed down but, supported by the strong construction industry and an excellent tourism season, still had not ended towards the end of the year. As a result of the declining economic situation, employment growth has now halved to 1 per cent year on year. 

“The expected increase in employment of around 30,000 people in 2020 will probably be too low to fully accommodate the additional workforce potential in the labour market, which has increased on average by more than 50,000 per year, driven in particular by the influx over the past 10 years. We therefore expect a slight increase in the average annual unemployment rate to 7.5 per cent in 2020. In 2021, the economic situation should once again be strong enough to stabilise the unemployment rate,” explains Pudschedl. 

Slight upwards trend in inflation 
At the turn of the year 2019/20, inflation was only just over 1 per cent year on year, partly due to the declining economic situation and the moderate price of oil. The estimated average annual inflation rate was 1.5 per cent for 2019, reaching the lowest rate for three years. With an average price of USD 57 or EUR 50 per barrel, the price of oil is expected to be around 10 per cent lower than in the previous year, with the exception of interim fluctuations in 2020, thus somewhat dampening inflation in Austria. In addition, slower economic growth means that inflationary forces will be kept at a minimum. “For 2020, we are anticipating an average inflation rate of 1.5 per cent, moving away from the low levels of just over 1 per cent recorded at the start of the year, with a slight upward trend emerging over the course of the year. The relatively high wage agreements should consolidate price buoyancy through the increase in unit labour costs, and strong private consumption will also contribute to price buoyancy regarding demand, both of which should increase inflation slightly to 1.8 per cent in 2021,” predicts Pudschedl. 


UniCredit Bank Austria Economics & Market Analysis Austria 
Walter Pudschedl, Tel.: +43 (0) 5 05 05-41957;
Email: walter.pudschedl@unicreditgroup.at