Austria: Austria Economy Profile

 Economic Overview

Growth has failed to gather momentum

Real GDP growth disappointed again in 2014, posting just +0.4%, bringing an end to a 12-year period of beating the Eurozone average (+0.8% in 2014). This largely came from a shift in external trade activity since imports (+2.2%) outpaced exports (+1.8%), a major shift from 2013 (+0.1% and +1.3%, respectively), subtracting -0.1pps from annual growth. The moderate growth result could have been much worse, if not for a turnaround in private consumption (+0.2%) and a pickup in public spending (+1%) in 2014. Additionally, inventories contributed +0.2pps during the year while fixed investment, after edging up in the beginning of the year, shifted back to contraction in H2 and turned out flat in 2014 as a whole.

In Q1 2015, real GDP moved back to slight growth of +0.1% q/q, after stagnating in the two preceding quarters. Modest expansion in consumer (+0.1% q/q) and public (+0.3% q/q) spending was partly offset by shrinking fixed investment (-0.4% q/q), though that decline moderated from Q4 (-1% q/q). External trade activity picked up, with exports (+0.8% q/q) and imports (+0.9% q/q) growing at a similar pace, resulting in a neutral impact on Q1 GDP growth.
 

Weak business confidence and declining investment point to further delayed recovery

Advanced indicators for Q2 2015 suggest economic activity will remain subdued in the near term. Eurostat's Economic Sentiment Indicator (ESI) for Austria, which has been broadly in line with or even outperformed the Eurozone average from 2008-2013, has sharply deteriorated since early 2014 and remained on a low level to date, in contrast to the Eurozone. Looking at the ESI sub-components, both industrial and retail confidence have moderately recovered in April-May. However, consumer confidence and especially construction sector confidence have continued on a downward trend. Moreover, loans to NFCs have declined since December 2014, suggesting that investment is likely to contract in 2015.

Overall, Euler Hermes expects the growth pattern to shift once again in 2015, with domestic demand contributing little while external demand should continue to recover and drive growth on the back of the weaker EUR and lower oil prices. Real GDP is forecast to expand by +0.7% in 2015 as a whole. In 2016, a pick-up in consumer spending and a recovery in investment are projected to result in more balanced GDP growth of +1.4%.

Country Rating AA1

Strengths

    Low systemic political risk
    Good regional and international relations, EU membership
    Eurozone membership provides low transfer and convertibility risk
    Low inflation but no deflation risk anticipated
    Consistent current account surpluses since 2002
    Strong business environment

Weaknesses

    Muted domestic demand since 2012
    High trade dependency on Germany
    Weak economic confidence since 2013
    Banking sector vulnerabilities due to large exposure Central and Eastern Europe, including Russia

Service Industries

Manufacturing

Foreign Trade

Austria depends heavily on trade, especially of manufactured goods that it sends out to European industrialized nations. Other major exports include forest products, including paper and pulp; iron and steel; and magnesite. Austria imports some types of machinery and vehicles and exports other types. The country's most significant imports include chemicals, foods, and petroleum.