Download The Austrian Economy in 2007

Report 1/2007 – The Austrian Economy
Kurt Fesselhofer
The Austrian Economy in 2007
Strong economic growth in 2007 following a strong start to the year
The Austrian economy has started the new year
a real 2.3%, a level also anticipated to be Austria's
on a dynamic footing. Although the economy is
average economic growth in the longer term.
anticipated to weaken slightly in the course of the
year, real GDP growth could amount to 2.8%. A
Global economy weakens
positive factor in this context is that economic
In the next few years, the growth of the global econ-
growth is increasingly supported by domestic
omy will slow to 4.4% (2007, in real terms) and 4.3%
demand. In 2008, the growth rate is likely to even
(2008) from average growth of over 5% p.a. in the
out at 2.3%, a level that is anticipated to be main-
period 2004 to 2006. After 3 years of strong growth,
tained in the longer term.
the US economy will weaken to under 3 percent in
2007 (+2.4%) and 2008 (+2.8%).
Based on preliminary figures so far available, the level
at which economic growth peaked in the second half
The economy of the euro area will also lose momen-
of 2006 continued to be maintained in the first quarter
tum, although after the 2.8% recorded for 2006, the
of 2007. The assumptions that the economy grew
slowdown will be moderate with growth anticipated at
strongly in this period are confirmed by the sentiment
2.3% in 2007 and 2.2% in 2008. We expect the slow-
indicators. The improved consumer sentiment will
down in economic growth to be much more pro-
probably be reflected in stronger consumption in
nounced in Germany. Real GDP growth peaked tem-
2007, and merchandise exports are likely to remain
porarily in 2006, when foreign and domestic demand
an engine of growth for the Austrian economy.
(supported by special factors such as the World Cup
and accelerated purchases prior to a VAT increase
While it was the beginning of 2006 which recorded the
effective 2007) were both rising faster, and is ex-
weakest GDP growth compared with the other quar-
pected to contract to around 1.5% in 2007 and 2008,
ters of that year, the trend may be reversed in 2007.
respectively (2006: +2.7%).
First quarter growth in 2007 could be in the region of
3.5% year-on-year, gradually slowing to about 2 ¼ %
Exports lose momentum
by the end of the year.
It is unlikely that the weaker world economy will permit
a repeat performance of the good 2006 export figures.
This assumption primarily rests on expectations of a
Merchandise exports rose by a nominal 12.7% in
weakening of global growth in the current year, which
2006; among Austria's key export markets, this was
will result in a considerable slowdown in export growth
largely achieved by exports to Russia (+31.2%), Ro-
in Austria. The – compared with previous years –
mania (+31.1%), Poland (+25.6%), USA (+15.5%),
more dynamic private consumption will contribute to
Slovenia (+13.3%), Italy (+13.2%), Germany (+12.9%)
average economic growth of 2.8% in real terms in
and the Czech Republic (+12.2%).
2007. This development (weaker export growth and
stronger private consumption) will continue in 2008.
Merchandise exports expanded by a real 9.3% in
We assume that 2008 will see Austria's GDP grow by
2006. With the global economy losing momentum, this
Bank Austria Creditanstalt Economics and Market Analysis
Report 1/2007 – The Austrian Economy
level will not be achieved in 2007. We expect export
2007 with growth of 3.5% before slowing to 2.4% as
growth to slow to 6.1% in 2007 and to 5.9% in 2008.
from 2008.
In the case of merchandise imports, import demand
Growing appetite for consumption
for production materials required by the export sector
In 2006, spending by consumers was restrained
will decline. Private consumption is however currently
(+1.7% in real terms) in light of buoyant economic
growing faster than in previous years, and will boost
growth. We expect consumer sentiment to improve
demand for merchandise imports. In light of these
markedly in 2007, and consequently also stronger
developments, merchandise imports are likely to grow
growth in consumption (+2.2% in real terms). The
by a real 5.5% in 2007, only slightly slower than in
improved condition of the labour market should in-
2006 (+6.0%). We expect merchandise imports to
creasingly boost consumption. Private consumption
expand by as much as 6.2% in 2008.
may therefore grow by 2.3% in 2008, exceeding the
level of the current year.
Demand for investments in plant and equipment
remains strong
Further decline in unemployment
The strong demand for investments in plant and
The combined effect of the robust economy and the
equipment seen in 2006 (real growth of 5.3%) will
mild winter that supported construction activity
probably continue in 2007. The upward trend is most
boosted employment in 2006 and in the first few
likely prompted by replacement investments and in-
months of 2007. The number of (salaried) employees
vestments made to expand capacity in light of the
rose by 1.7% in 2006, a momentum which continued
favourable development of the Austrian economy. We
into 2007. This development is marred only by the fact
therefore expect investments in plant and equipment
that part-time jobs accounted for about two-thirds of
to grow by a real 5.3% in 2007. This will fall to 3.2%
this increase. We expect the number of employed
with the weaker economic growth anticipated for
persons to average about 3,219,000 in 2007 (without
2008.
persons doing military service, persons on maternity/paternity leave, and training programme partici-
Robust construction industry
pants), which represents a rise of 1.8% over 2006. In
2006 was a very successful year for Austria's con-
2008, the number of employed persons is likely to
struction industry, and there are reasonably good
grow by about 1%.
prospects that the favourable trend will continue. Both
the civil and structural engineering sectors developed
For a number of years now, unemployment has been
positively in 2006. Construction of residential housing
reduced by measures such as comprehensive training
and housing estates grew by about one quarter in
programmes which affect the relevant statistical data.
nominal terms, and other construction work in the field
These measures will probably be continued in the
of structural engineering including adaptation projects
foreseeable future. Together with the rise in employ-
grew at double-digit rates. Only industrial and engi-
ment, this serves to ensure that unemployment is
neering construction recorded a decline in turnover.
falling despite an increase in the labour force poten-
The civil engineering sector also achieved double-digit
tial. Pursuant to Austrian labour market criteria, un-
growth, with permanent ways, bridge construction and
employment could therefore fall from 6.8% (2006) to
flyovers achieving the strongest growth rates.
6.2% (2007), and further to 5.9% in 2008 (the comparable figures pursuant to Eurostat criteria are
Construction investments expanded by a real 4% in
4.8%/4.3%/4.1%).
2006. This will probably be more or less matched in
Bank Austria Creditanstalt Economics and Market Analysis
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Report 1/2007 – The Austrian Economy
Modest inflation
We expect inflation to amount to 1.7% in 2007. This
From a current perspective, consumer price develop-
corresponds to the average annual change in con-
ments are not a cause of concern for the Austrian
sumer prices over the last ten years. Unless economic
economy. Inflation averaged 1.5% in 2006, and in
developments are adversely affected by special fac-
January 2007 it was at a moderate 1.6%. Inflation was
tors (crises, environmental factors), this phase of low
spurred by prices in the areas of housing, water, en-
inflation rates should continue in 2008 with an inflation
ergy and foodstuffs. Clothing and shoes, as well as
rate of around 1.8%.
leisure and cultural activities, cost less than in 2005.
Economic Forecast for Austria
BA-CA's Forecast
March 2007
2007
2008
2003
2004
2005
2006
Gross Domestic Product (GDP)*)
1.1
2.4
2.0
3.2
2.8
+
2.3
x
Private consumption*)
1.3
1.9
1.7
1.8
2.2
=
2.3
x
Gross fixed capital formation*)
6.6
0.5
-0.4
4.3
5.5
+
3.4
x
Investments in plant and machinery*)
6.8
-1.6
0.2
5.3
5.3
=
3.2
x
Investments in construction*)
5.1
1.6
0.4
4.6
3.5
-
2.4
x
Exports in the wider sense*)
2.0
10.0
6.4
8.5
5.7
-
5.1
x
Imports in the wider sense*)
5.1
8.7
5.2
6.8
5.8
+
5.6
x
Current account balance (in % of GDP)
-0.2
0.2
1.2
1.2
0.9
=
0.8
x
Increase in consumer prices (%)
1.3
2.1
2.3
1.5
1.7
-
1.8
x
Unemployment rate (according to EU criteria, in %)
4.3
4.9
5.2
4.8
4.3
-
4.1
x
Unemployment rate (according to AMS, in %)
7.0
7.1
7.3
6.8
6.2
-
5.9
x
*) real growth, change in % / + the forecast has been revised upward over the previous forecast / - the forecast has been revised
downward over the previous forecast / = no change over previous forecast / x no comparative figure in the last forecast
Source: BA-CA Economics and Market Analysis
Bank Austria Creditanstalt Economics and Market Analysis
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