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UniCredit Bank Austria Business Indicator:
Positive signs for the Austrian economy at the start of 2020

  • The UniCredit Bank Austria Business Indicator rose to 1.7 points in January 2020 – its highest level for eight months 
  • Optimism in the domestic sectors increased in early 2020 and the export environment benefited from the conclusion of the US-China trade agreement 
  • The economic consequences of the Coronavirus for Austria cannot be calculated yet, but only a low impact is expected, as China’s share of value added is only 2.5 per cent of GDP 
  •  We expect economic growth of 1 per cent for 2020. A moderate global recovery is expected to increase growth prospects for 2021 to 1.3 per cent 
  • At the beginning of the year, the good weather ensures an improvement in the labour market, but the average unemployment rate will rise to 7.5 per cent for 2020 due to the economic situation 
  • We expect average inflation to remain unchanged at 1.5 per cent in 2020 

At the beginning of 2020, economic sentiment in Austria improved. “The UniCredit Bank Austria Business Indicator rose to 1.7 points in January. That means that the indicator has reached its highest level for eight months and is a sign that the downward trend in the domestic economy that has been going on for two years will at least be interrupted for the next few months”, says UniCredit Bank Austria chief economist, Stefan Bruckbauer. 

For the first time in months, there are clear positive signs for the Austrian economy. “While the domestic industry is still in a mild recession, the general conditions for the domestic export industry have improved in early 2020. In addition, the good sentiment in the domestic sectors increased once more. The construction industry and the service sector benefited from the renewed increase in consumer optimism”, said Bruckbauer. 

Improved economic sentiment at the start of the year
Uncertainty in the global economy has declined thanks to the trade agreement between the USA and China. Weak global trade is improving and has boosted industrial sentiment worldwide. Economic worries in the sector have decreased somewhat, particularly in Asia, but also in the core countries of the eurozone. As a result, the Austrian economy’s export environment is somewhat more favourable at the start of 2020. Nevertheless, the sentiment in the domestic (supplier) sector has deteriorated somewhat in the face of the continuing difficulties of the German automotive industry, the imminent increase in tariffs on US car imports and the expansion of customs duties on steel and aluminium by the USA. In the non-export-oriented industries, however, optimism increased slightly at the beginning of the year. Consumer sentiment has picked up again in view of the continued positive development on the labour market. This had a positive influence on the service sector and confidence in the construction industry improved at the start of the year, supported by the good weather, which ensured a high level of capacity utilisation. 

Economic risk of the Coronavirus 
In view of the positive economic situation, a stabilisation of the economy is expected for the beginning of the year. In the first half of the year, economic growth is expected to maintain the momentum from the end of 2019. However, sentiment was put to the test even before the outbreak of the Coronavirus in China. At least in the first quarter, the Chinese economy will feel negative economic effects similar to those experienced during the SARS outbreak in 2003, which will also likely impact the global economy. In order to assess possible consequences, it should be taken into account that, compared with 2003, the Chinese economy now has considerably greater global significance. Whereas China was responsible for around 4 per cent of world GDP in 2003, the Chinese economy now accounts for almost 17 per cent. 

“It is not yet possible to predict the extent of the Coronavirus’ economic impact. According to our model calculation, a reduction in growth in China by one percentage point would impact the global economy by 0.4 percentage points and the European economy by around 0.25 percentage points”, said Bruckbauer, adding: “Due to the close trade interdependence, Asian countries such as Vietnam, Cambodia and Malaysia would be heavily impacted by negative effects. With China accounting for around 2.5 per cent of value added, Austria has a comparatively low dependence on the Chinese economy and lower negative consequences would therefore be expected than the USA, United Kingdom or many Eastern European countries, such as Slovakia or the Czech Republic”. 

US downturn will slow
The current sentiment indicators and other early indicators show that the economy is stabilising at a moderate level of growth. In the coming months, this development could be jeopardised by the negative effects of the Coronavirus, while later in the year, the economic downturn in the USA is highly likely to dampen Austrian economic momentum. Persistent trade barriers, declining company profitability and expiring fiscal stimulus even make a mild recession a possibility for the US economy during the second half of the year. The renewed international struggles will affect economic growth in Austria. 

“For 2020 as a whole, we expect a further reduction in the increase in GDP to 1.0 per cent from 1.6 per cent in 2019”, said UniCredit Bank Austria economist, Walter Pudschedl, adding: “The waning demand for exports and only modest willingness to invest in this environment cannot be completely offset by heavy consumption, despite new fiscal stimulus, and especially as the existing economic uncertainties are likely to trigger an increase in the saving rate”. With a little more international support, a moderate recovery of the Austrian economy can be expected for 2021, which should be reflected in a slight increase in economic growth to 1.3 per cent. 

Construction industry a key driver for ongoing improvement in the labour market 
The labour market strongly reflects the various sectoral development of the Austrian economy. Despite the slowdown in the economy, the situation on the Austrian labour market is still improving overall for the time being. The seasonally-adjusted unemployment rate fell to 7.1 per cent in January 2020. In manufacturing, which has the lowest sector-wide unemployment rate at 3.7 per cent, employment is now declining and unemployment is increasing, resulting in a slight upward trend in the unemployment rate. 

Firstly, the overall economic decline in the unemployment rate is due to most service sectors. Tourism in particular ensures a continued improvement in employment levels. As a result, the unemployment rate in the service sector continues to show a slight downward trend and currently stands at 7.5 per cent. 

Secondly, the strong construction industry is also responsible, further supported by the unusually warm winter weather. In the construction industry, there is a strong downward trend in the seasonally-adjusted unemployment rate and, at 8.2 per cent in January 2020, it stands an entire percentage point lower than in the previous year. The construction industry, which accounts for around 7 per cent of the workforce, is currently responsible for a quarter of the increase in employment and is responsible for almost 50 per cent of the decline in the number of job seekers in Austria. 

“As the advantageous clement weather, which is currently keeping unemployment low, will soon fade, the weaker economy will be reflected in the labour market in the coming months and lead to an increase in the unemployment rate over the course of the year. After 7.4 per cent in 2019, we expect a rise in the unemployment rate for 2020 to a maximum of 7.5 per cent on average”, said Pudschedl. 

Inflation remains low
The weaker economy and low oil prices dampen inflation at the beginning of the year. “In the coming months, the inflation rate in Austria will be around 1.5 per cent year on year. We expect an average inflation of 1.5 per cent in 2020, the same as last year”, says Pudschedl. A smaller price boost due to the moderate economic situation, which low oil prices would also suggest, will be prevented by the relatively high momentum of service prices as a result of continued strong consumption, meaning that inflation will again be higher than in the eurozone or in neighbouring Germany. Economists at UniCredit Bank Austria expect inflation of 1.0 per cent on average for the eurozone and 1.4 per cent for Germany in 2020. 


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