Austria Central Bank Statement

Author: IFLR Correspondent | Published: 24 Sep 2019
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

The global economy weakened considerably over 2018, especially as a result of mounting trade tensions between the US and China. The struggles of Germany's manufacturing industry, its automotive industry in particular, have also been a drag on economic growth in Europe. Furthermore, the uncertainty over Brexit and post-Brexit relations between the UK and the EU has created heightened risks for economic agents and companies, dampening demand for investment.

While economic activity in Austria has been slowing amid weakening global growth, resilient domestic demand is mitigating the effects of lower contributions from net exports. Following booming growth in 2017 and 2018 (+2.7%), the Oesterreichische Nationalbank (OeNB) expects real GDP growth to weaken in 2019 (+1.5%) and to then rebound slightly and level off in 2020 and 2021 (+1.6%).

The growth setback in East Asia has added to the deceleration of global economic activity and trade. Since global import growth was further weakening in 2019, Austria's export industry has started to do less well. Export growth is likely to slow further until mid-2019 and consequentially, exports are projected to grow only moderately in 2019 but accelerate thereafter.

While the global economy has been dampening GDP growth in Austria, strong domestic demand continues to be a stabilising factor. The booming economy facilitated strong wage settlements for 2019; a higher tax relief for families supports this further. In 2020 and 2021, disposable household income is expected to grow at a slightly slower pace, and as a result so is private consumption.

Alongside private consumption, growth of gross fixed capital formation will be driving economic activity in Austria. While the contributions to GDP growth from investment in equipment have become increasingly weaker since early 2019, the contributions from construction investment to total gross fixed capital formation have been outpacing long-term averages. This trend will remain in place until the end of the year.

The labour market has continued to strengthen. Employment growth peaked in late 2017 and has since been decelerating, nevertheless the outlook for 2019 as a whole is 1.6%. Looking ahead, employment growth is expected to reach 1.1% in 2021. Unemployment is forecast to drop slightly to 4.7% in 2019 and to remain stable until 2021.

HICP inflation is forecast to run to 1.7% in 2019 and then remain unchanged. Compared with 2018 this implies a 0.4 percentage point reduction, which is attributable above all to the subdued increase in energy prices. Core inflation will exceed HICP inflation over the forecast horizon.

The general government is forecast to reach a surplus in 2019. The surplus will be driven mainly by revenue-enhancing conditions and a further decrease in debt servicing costs. These two factors will remain instrumental in the two subsequent years, driving the surplus up to 0.5% of GDP in 2021.

The fiscal projections are based on a no-policy-change assumption; only small parts of the announced tax reform are included. The projected decline of the debt-to-GDP ratio to 65.3% would reinstate 2007 conditions.