There are signs that the Austrian economy will be able to follow in the footsteps of the recovery in the Eurozone, albeit at a moderate pace. A UniCredit Bank Austria Economics & Market Analysis.
While the beginning of the year saw very subdued economic development and was characterised by particularly gloomy sentiment and a high level of uncertainty compared with other European countries, increasingly there are signs that Austria’s economy will be able to follow in the footsteps of the recovery in the Eurozone, albeit only at a moderate pace for the time being.
However, the outlook with regard to sentiment remains very reserved. On one hand, sentiment among Austrian consumers has worsened considerably again. On the other hand, sentiment in Austrian industry has stabilised, which can primarily be attributed to a European environment in which companies are very optimistic about the business outlook despite the slight correction that is currently under way.
Positive influence from external factors
Favourable external factors such as the stabilisation of the recovery in Europe, the weak euro, and low oil prices are expected to support demand for Austrian exports in the coming months. Foreign trade will gain momentum despite the worsening conditions in some growth markets and the continuing Russia/Ukraine crisis. However, it will no longer make such a strong contribution to growth due to the increase in imports. Nevertheless, the resurgence in foreign demand will likely provide a boost to investment activity at least in the second half of the year, especially because financing conditions should remain favourable thanks to the ECB’s loose monetary policy.
Despite the continuing rise in unemployment, the improving economic data should brighten the pessimistic sentiment among consumers – albeit gradually. Supported by low inflation, private consumption will likely continue along its moderate growth path and make domestic demand an increasingly important driver of Austria’s economic development in the coming months. “Following the still sluggish growth at the start of the year, we expect to see a bit more momentum in the second quarter and anticipate a continuation of the moderate recovery of the Austrian economy up until the end of the year. We are sticking to our growth forecast of 0.9% for 2015, which means that like last year, Austria will fall short of the Eurozone average,” explained Bruckbauer. Bank Austria’s economists anticipate economic growth of 1.4% for the Eurozone in 2015.
Inflation expectations normalising
While the growth outlook is gradually improving, the inflation expectations are beginning to normalise in Austria as well. Three factors are now contributing to this trend: First, the decline in commodity prices has come to an end, and crude oil prices in particular have increased again in recent weeks. Second, import prices for some consumer goods are rising due to the weakness of the euro. Although the euro has appreciated versus the US dollar again in recent weeks, it is still trading about 20% lower than in 2014. Third, the freedom of companies to set prices has increased recently, and more upside pressure on inflation is to be expected in the coming months due to demand.
After the low inflation readings at the beginning of the year, the reversal has already set in. Starting in the second half of the year, inflation will increasingly move towards the 2% mark in year-on-year terms. Based on the earlier-than-anticipated recovery of crude oil prices, UniCredit Bank Austria has raised their inflation forecast for 2015 from 0.9% to 1.2%.
Contact:
Tina Fischer
Senior Relationship Manager Austria
Global Securities Services Austria
tina.fischer@unicreditgroup.at