Economic Outlook no. 1189-1190 |Macroeconomic, Risk and Insolvency Outlook
Austria
Temporary downward trend
Country Risk Level LOW
Overview After the promising start to the year, economic momentum in Austria has been dragged down by the global strain coming from the European debt crisis as the year has progressed. After expanding by +0.3% q/q and +0.1% q/q in the first and second quarter, GDP contracted slightly by -0.1% in the third quarter. With demand remaining generally weak in tandem with an appreciable deterioration in business confidence, capital spending in the corporate sector was additionally scaled back. GDP growth is expected to weaken to an average of +0.4% in 2012, down from the previous year’s increase of +2.7%. There is little hope of any improvement in 2013 (+0.5%), with economic momentum unlikely to strengthen until 2014 (+1.6%) against the backdrop of a global improvement in economic conditions.
The contribution of external trade to. GDP growth is expected to be neutral in 2013. Export growth picked up in the course of the year to reach +0.9% in the third quarter. As imports grew by a greater rate, net foreign trade made a negative contribution to growth of +0.1 pp. Although exports did not slump as sharply as had been feared given the slowdown in the international eco- nomy, fragile demand in Austria’s most important trading partners is likely to exert greater pressure on export business in the winter half year. Foreign trade activity will remain muted in 2013 and will therefore not make any noticeable contribution to growth. However, exports should reco- ver appreciably in 2014 with the expec- ted improvement in global trade.
Consumer spending is projected to grow gradually. Consumer spending was again flat in the third quarter and has been effectively stagnant for one year now. This particu-larly reflects muted confidence as a result of weaker expectations and persistently strong uncertainty. Employment and income growth, which has hitherto remained robust, has slowed visibly and looks set to remain weak in the short term; unemployment, which is low compa- red to other OECD countries, could also rise slightly. All told, we assume that con-sumer spending will rise only moderately by +0.2% in 2012 and +0.4%
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in 2013, before climbing by a strong rate of +0.9% in 2014.
Growth in capital spending should register a marked deceleration 2013. Given the substantial deterioration in business confidence, capital spending has continued to decline by -0.2% q/q, after already dropping by -0.3% in the previous quarter. Spending on capital goods in particular has weakened substantially, contracting for the third consecutive time. Construction spen- ding also dropped slightly. In the short term, the situation is not likely to improve to any meaningful degree. All told, overall capital spending will approximately rise by +1.0% in 2012, +0.4% in 2013 and +2.5% in 2014. Under these conditions, we expect corporate insolvencies to climb by +2% in 2012 and +3% in 2013.
Public-sector debt headed for a new record. The consolidation plan adop- ted by Austrian authorities appears to be appropriate, although the nominal goals which have been defined cannot be reached directly. The consolidation programme aims to achieve a virtually balanced public-sector budget by 2016 and to lower public-sector debt to a good 70% of GDP. The budget deficit, which stood at -2.5% of GDP in 2011, will widen temporarily in 2012 due to measures taken to sure up the stability of the financial markets and will not
shrink again appreciably until 2014. Accordingly, public-sector debt will be temporarily steering a course towards a new historical record of a good 75% of GDP in 2013. However, at this stage there is a good chance of the consoli- dation targets being achieved in the following years._RG
To watch…
>Trends in order receipts, particularly exports and more general business confidence. >Ratings in the Austrian banking sector. >Performance of the main markets in Central and South Eastern Europe. >Legislative elections (September 2013)._