Download Varying positions in the crisis

Report 2/2009
Varying positions in the crisis
How Austria’s federal provinces will negotiate the economic downturn
Walter Pudschedl / [email protected]
The economic crisis that has reached Austria is beginning to
have a strong impact on the Austrian economy. GDP will contract by 3.5% in 2009 and the prospects for 2010 are also
fairly bleak. Some federal provinces will negotiate the challenges more quickly and with greater ease. They are structurally better positioned in the current environment. *
In most cases, economic trends in Austria's federal provinces vary
from region to region. This was also very apparent in the last
period of strong economic growth, starting with the upturn in 2003
until the zenith of the boom at the turn of the year 2007/2008. The
increase in the gross value added of the province with the most
dynamic growth was sometimes three times that of the province
with the weakest growth rate. In Austria, gross value added increased by an average 2.6% in real terms in the above period.
While the province of Salzburg and the eastern part of Austria,
comprising Vienna, Lower Austria and Burgenland remained below
the national average, the provinces in western Austria and Styria
were the country's primary growth regions. Upper Austria, Styria
and Vorarlberg achieved growth rates which were in some cases
well over 3%.
It is no coincidence that these provinces recorded such strong
growth. The high economic activity of past years, based on globalisation and liberalisation trends, the integration of the European
market and the opening of Eastern Europe, was driven by un-
precedented growth in foreign trade. The provinces which were
able to build on a strong and flexible export sector had decisive
advantages. The three provinces with the strongest growth rates in
the past years are also those regions with the strongest export
orientation. Vorarlberg and Upper Austria have an export share of
over 60%, and Styria an export share of almost 50%. Exports of
merchandise as a percentage of Austria's economic performance
averaged 41%. Thanks to annual export growth of about 10%,
Austria's top performers succeeded in strongly expanding their
export base from 2003 to 2007, and in maintaining their levels in
2008. In this period, export share expanded by well over 10 percentage points only in these three provinces.
Industry impacted by the international crisis
The current economic slump is explained by a massive, global
decline in demand for capital goods. Flagging foreign demand has
led to a sharp decline in Austrian merchandise exports since the
autumn of 2008. In the first quarter of 2009, exports contracted by
as much as 20% year-on-year, causing average monthly export
volume to fall to the levels prevailing at year-end 2005. The expansion of a three-year period was wiped out in a very short time.
It is Austria's industry which is bearing the brunt of this development: while the industrial sector accounts for about 70% of Austrian exports, it has a share of less than 20% in Austria's overall
economic performance. Within the economy, the country's manufacturing industry, with a workforce of about 600,000 employees,
Export share in Austria
Economic structure of the federal provinces
(Merchandise exports in per cent of regional economic performance)
(share of industries in regional product in per cent - ranked by size of manufacturing industry)
2003
2008
100%
70
Other services
60
80%
Business
services
50
Trade
60%
40
Tourism
40%
30
Construction
20
20%
Manufacturing
10
Primary sector
0%
0
B
VI
C
S
T
LA
ST
UA
V
Source: Statistik Austria, Bank Austria Economics & Market Analysis
Average
UA
V
ST
LA
C
T
ST
B
VI
Austria
Source: Statistik Austria, Bank Austria Economics & Market Analysis
*
This article is based on a detailed analysis which is available on our
website as a special publication entitled "XPLICIT" (available in German
only)
June 2009
Bank Austria Economics & Market Analysis
Report 2/2009
is therefore most severely impacted by the current economic
downturn. This means that the current situation is particularly
challenging for the provinces with a high dependence on manufacturing as a percentage of total economic performance. Upper
Austria has the largest manufacturing sector, accounting for 30%
of economic performance, followed by Vorarlberg (28%) and Styria
(25.2%). Vienna, the province with the lowest manufacturing
orientation, has a share of less than 10%.
With due consideration to the differing sectoral trends and the
varying economic significance of the specific economic segments
in the provinces, it is Upper Austria's manufacturing sector which
is affected the strongest, followed by that of Styria and Vorarlberg.
Lower Austria's industry will also feel the impact of the downturn
to a disproportionately large extent, while Salzburg and especially
Vienna benefit from advantages attributable to their structural
approach.
Service centres at an advantage
The service sector has generally not been as badly hit by the economic slump as the industrial sector. As it accounts for over twothirds of value added, the tertiary sector – which also embraces
70% of Austria's wage and salary owners – constitutes a very
important stabilising factor in the current economic downturn. The
provinces with a disproportionately strong focus on services therefore have a good chance of turning in more favourable economic
data in the coming months. The regions above all include Vienna,
whose service sector accounts for over 80% of value added.
Former top economic performers flagging, eastern Austria
better off
In light of the above-mentioned trends in the specific sectors in an
environment characterised by weak global demand, a glance at the
structural profiles of the economies of the respective provinces
shows to what extent a region will be affected by the crisis. We
expect the Austrian economy to contract by a real 3.5% in 2009,
while the economies of Upper Austria, Vorarlberg and Styria are
likely to shrink by a disproportionately strong rate that is well above
this figure. Economic growth in the Tyrol, Lower Austria and Salzburg will more or less correspond to the Austrian average. Carinthia, the Burgenland and especially Vienna will be better placed to
meet the challenges of the current economic crisis. We nonetheless expect the economic performance of all federal provinces in
2009 to be below the previous year's level. Given the strong international links, no Austrian region can entirely protect itself from the
negative global trends.
Construction restored to sound footing
The construction industry, a beneficiary of the economic support
measures, will be fairly successful in holding its own in the next
few months. Construction output will decline by some 3% in real
terms in 2009, and by a further 1% in 2010. The construction
industry in Burgenland, Carinthia and Lower Austria accounted for
the highest proportion of value added. Whether these provinces
will also derive practical benefits from this development will depend on the orientation of the local construction industry. While
Burgenland's construction industry concentrates mostly on structural engineering, the construction sectors in Lower Austria, Carinthia and Upper Austria will benefit from the more favourable development in civil engineering in light of these regions' focus on this
segment.
Trends in the individual federal provinces
Sectoral trend
Primary sector
Industry
Steel industry
Metal engineering
Engineering
Automotive industry
Electrical industry
Food industry
Construction
Services industry
Retail trade
Tourism
Business services
Other services
Austrian economy
1)
B
+
+
+
+
+
+
GDP real: -3.5 %
2)
+
+
a
d
a
a
d
d
+
d
d
a
a
+
C
2)
+
+
a
d
d
a
a
a
+
+
d
d
a
o
+
2)
UA
+
d
d
d
a
a
d
+
+
d
a
a
o
+/-
d
d
d
d
d
d
+
a
a
a
d
-
LA
2)
2)
ST
+/+
a
a
a
a
a
o
d
d
d
d
+/-
+
d
d
d
d
d
o
+
o
a
a
o
-
S
2)
T
2)
+/+
a
a
a
a
d
a
d
d
a
d
+/-
V
2)
+/a
d
d
d
d
d
+/a
d
a
d
-
Note 1: +…better than average / -…worse than average / +/-…average
Note 2: a…structural advantage in the crisis / d…structural disadvantage / o…neutral
1) based on overall economy, 2) based on sectoral developments in Austria
Source: Bank Austria Economics & Market Analysis
2 June 2009
Bank Austria Economics & Market Analysis