Austria Central Bank Statement

Author: | Published: 5 Sep 2017
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The growth of the global economy accelerated noticeably toward the end of 2016. The US economy is expected to gain further momentum in 2017, driven by the expected fiscal policy easing. Commodity-exporting countries are benefiting from increasing commodity prices, and growth in China remains strong. The euro area is in a cyclical upturn, backed by robust consumption growth and improvements in the labour market. The euro area industry is benefiting from improvements in world trade and global manufacturing. Economic expansion continued and broadened further across countries at the beginning of 2017. Business and consumer confidence improved significantly in recent months, suggesting that activity will continue to expand. Inflation in the euro area has been considerably below the European Central Bank's (ECB) price stability definition for a prolonged period. Over the course of 2016, inflation increased, driven mainly by rising commodity prices. Core inflation excluding food and energy has shown a continued sideways movement at moderate levels just below 1%, posing a continued challenge for monetary policy. In recent years, a number of euro area countries have experienced a drop in house prices. Meanwhile, the majority of euro area countries are in an upturn phase of the housing cycle, although the strength of the recovery is still relatively muted overall and rather heterogeneous across countries.

Starting in 2012, the Austrian economy grew at a rate of below 1% over a period of four years. In 2016, GDP growth accelerated to 1.4%, mainly driven by a major income tax reform. According to the June 2017 outlook of the Oesterreichische Nationalbank (OeNB), the Austrian economy will gain further momentum in 2017 and GDP growth will accelerate to just over 2%. This cyclical upswing is broad based. Private consumption continues to benefit from the tax reform that came into effect in January 2016. Households have been spending only parts of the income gains from the tax reform, much of the additional income went into savings. These extra savings are likely to boost consumption in 2017, but the impact will fade out over time. Harmonised Index of Consumer Prices (HICP) inflation has been increasing in recent months, reaching 2.2% in March 2016. Inflation now exceeds negotiated wage growth. The dampening impact of inflation on real incomes, and thus on consumption, is likely to persist in the months ahead. At the same time, the outlook for employment is very good, which will continue to support private consumption.

The investment cycle peaked in 2016, mainly driven by investment in vehicles. In 2017, the pace of expansion will moderate only slightly as high capacity utilisation signals the need for expansion investment. Global trade was very weak over the past years but started to recover significantly toward the end of 2016. Against this background, Austrian exports accelerated considerably in the first quarter of 2017. Leading indicators, like the OeNB's export indicator, as well as export orders show a further increase in the months to come.

After 2017, the waning effects of the tax reform and a cyclical slowdown of investment will dampen domestic demand growth. Consequently, output growth is expected to slow down to between 1.5% and 2% in 2018 and 2019, respectively. Over the years 2017 to 2019, the cumulated growth performance of Austria is expected to be very similar to that of the euro area. Overall, the current outlook for the Austrian economy is very favourable; the prolonged period of weak growth has finally ended.




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