UniCredit Bank Austria analysis of the economies of the federal states for 2019 and outlook for 2020:
Following a slowdown in growth in 2019, the coronavirus crisis has led to a significant decline in economic output across all federal states in 2020
- With economic growth of 2%, Styria was Austria's best-performing region in 2019
- The more service-led federal states are at the forefront of growth, as they have been less affected by the downturn in global trade than the industrial strongholds
- Unemployment fell for the third year in a row across all federal states in 2019
- Outlook for 2020: The coronavirus crisis is responsible for a decline in the Austrian economy of almost 9%, with the tourism-reliant federal states in particular feeling the strain
- The unemployment rate in Austria has risen significantly in 2020 to almost 11%, ranging from just over 7.5% in Upper Austria to 15% in Vienna
Economic growth in Austria slowed in 2019, dropping to 1.6% compared with the 2.4% achieved in 2018. Weak global trade had an impact on domestic foreign trade, but the situation was buoyed by strong private consumption driven by increasing real-terms wages and fiscal stimuli, as well as investments that benefited from strong construction activity.
"Across all federal states, the unfavourable economic environment in 2019 led to a slowdown in economic growth compared with 2018, in some cases quite considerable. The industrial economies of the individual regions have been hit particularly hard by the global downturn. By contrast, the continued strength of domestic consumption and an excellent year for tourism provided a strong boost for the service sectors", says UniCredit Bank Austria Chief Economist Stefan Bruckbauer.
Styria key growth driver in 2019
"Overall, the growth dynamic of 2019 favoured the more service-oriented federal states, which also lead the regional growth rankings. By contrast, the majority of the federal states that rely strongly on industry have underperformed the average in terms of their growth in economic output. The traditional industrial stronghold of Styria, however, bucked this overarching trend and posted growth of 2.0% percent in 2019, outperforming all other Austrian federal states", says Bruckbauer.
Styria's results were boosted by a boom in automotive manufacture, the strong construction economy and high demand for services relating to transportation and business. The federal states of Salzburg and Vienna, which are powered largely by the service sector, also outperformed average economic growth, each posting growth of 1.8%. The Tyrolean economy generated growth of 1.6% in 2019, mirroring the national average. This performance was driven by factors including strong tourism. By contrast, the industrial regions of Upper Austria (+1.5%), Vorarlberg (+1.4%), Carinthia and Lower Austria (each +1.2%) posted economic growth that was somewhat below the average. These federal states are home to a number of international businesses that have been particularly badly affected by the downturn in the global economy. Bringing up the rear in 2019 was Burgenland, with estimated growth in regional economic output of just 1.1%, driven by a weak regional industrial economy.
Growth across all federal states buoyed by the service sector in 2019
Strong consumption, supported by real-terms wage increases, solid growth in employment and fiscal stimuli, saw the Austrian service sector perform better than in previous years, achieving a real-terms value-add of 1.8%. This means that the service sector, which contributes almost 70% of the value-add Austria wide, also outperformed the overall economy and delivered by far the biggest growth contribution across all federal states. On the whole, looking at the average for Austria, the service sector accounted for almost three quarters of economic growth, supported by strong private consumption. "The transportation industry posted good growth across all federal states. Tourism was very strong, especially in eastern Austria, as a result of good increases in overnight stays. Overall, the service sectors in Vienna, Lower Austria and Salzburg delivered the strongest growth momentum. Carinthia benefitted least from this positive impetus", says UniCredit Bank Austria Economist Robert Schwarz.
Momentum in construction industry, in particular with structural engineering
In 2019, the construction economy was once again characterised by strong growth, with a 2.5% increase in real-terms value-add. However, it did still lose momentum compared with 2017 and 2018. Nevertheless, construction, accounting for 6.5% of value-add in Austria as a whole, contributed almost 10% to economic growth. Housing construction, and by extension the construction industry, delivered a particularly high rate of growth. The construction industry was extremely buoyant across the federal states, in particular in Lower Austria, Carinthia and Tyrol. Vorarlberg was the only region not to benefit, instead showing a slight decline.
Downturn in the global economy dampens industrial momentum
Austria's export-oriented industrial businesses felt the effects of the slowdown in global trade keenly in 2019, with growth in Austrian goods exports halving to 2.5%. Looking at the individual federal states, Vienna, Styria and Tyrol clearly outperformed the average growth rate. Carinthia is at the lower end of the export rankings. The southernmost federal state was the only region to record a decline in exports.
After an encouraging 5.1% real-terms value-add in 2018, industrial growth declined to 1% in 2019. All federal states were affected by the downturn in the industrial economy. The slower rate of growth was particularly noticeable in Carinthia and Lower Austria. Industrial business remained relatively robust in Salzburg and Vorarlberg. "Despite the slowdown, the capital goods industry was a key growth driver across almost all federal states in 2019. The traditional industrial strongholds of Styria, Upper Austria and Vorarlberg performed particularly well in this sector. Only in Burgenland and Lower Austria did the industrial economy fail to make a positive contribution to economic growth", says Schwarz.
Outlook for 2020: Massive economic slump across all federal states
In the wake of the coronavirus crisis, economic output in Austria is set to decline significantly in 2020, by around 9%. The effects of the measures to combat the coronavirus will be felt strongly by all Austrian federal states. The decline in value-add is likely to be much stronger than that seen during the financial crisis of 2008/2009. In contrast to the situation during the financial crisis, which disproportionately affected the industry-reliant federal states, the tourism strongholds are likely to be worst affected by the coronavirus crisis.
"Looking at 2020 as a whole, Tyrol is likely to suffer the strongest decline in economic output among all Austrian federal states, at 12%. Given their reliance on tourism and the strong focus on attracting foreign tourists, Salzburg and Vorarlberg are also set to suffer double-digit economic decline. However, the decline is likely to be a little less severe in Vienna and Burgenland", says Schwarz.
The economy of Vorarlberg is particularly badly affected by the interruption of global value chains, due to its high levels of industry. The industrial strongholds of Upper Austria and Styria as well as Lower Austria and Carinthia are also suffering the effects of the supply-side disruption to the economy. The economists at UniCredit Bank Austria are of the opinion that the economic slump in these federal states will be around or slightly above 9%, with tourism in Upper Austria, Lower Austria and Styria being significantly less important in the context of the economy as a whole and also being primarily geared towards the domestic sector. The public sector is a key differentiator in the federal capital of Vienna and in Burgenland. Economic output from this sector is less dependent on the economy. However, due to the international nature of visitors to Vienna and the huge importance of conference tourism, the number of overnight stays in Vienna is likely to almost halve. In Vienna and Burgenland, the decline in economic output will be less severe than the average figure, but at 8% and 7.5% respectively will still rank among the worst historical performances.
Unemployment fell in 2019 but the coronavirus crisis is driving an abrupt trend reversal
For the third year in a row, the unemployment rate fell across all federal states in 2019. However, the pace of the decline has slowed in step with the weaker economic momentum of the previous year. The average unemployment rate in Austria in the previous year was 7.4%, compared with 7.7% in 2018. Differing development across the various sectors influenced the regional trend on the labour market. In the construction and tourism sectors, the number of people unemployed fell particularly sharply, while the decline was significantly lower than in 2018 in the industrial sector. This situation was particularly beneficial for the Tyrol and Salzburg labour markets. At 4.5%, Tyrol had the lowest unemployment rate in Austria once more. Vienna, despite sitting at 11.7% following a marked decline, continued to post the highest rate by far among all federal states.
"The effects of the coronavirus crisis are already being felt on the labour markets across all federal states, with evidence of a noticeable deterioration. We anticipate that the average unemployment rate in Austria for 2020 as a whole will increase from 7.4% to around 11%. While Vienna looks set to continue bringing up the rear at 15%, Upper Austria is expected to post the lowest unemployment rate among all federal states, despite an increase to over 7%. The tourism stronghold of Tyrol, previously the leader, will have to reckon with the biggest increase in unemployment, relatively speaking", says Schwarz.
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