AustriaUp-to-date UNICREDIT BANK AUSTRIA ECONOMICS & MARKET ANALYSIS AUSTRIA

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1 AustriaUp-to-date UNICREDIT BANK AUSTRIA ECONOMICS & MARKET ANALYSIS AUSTRIA March 19

2 Business cycle GDP growth will decrease to around % in 19/ International environment (GDP, change in %) Euro zone Germany France Italy Spain UK USA Japan (annual average) e USD per euro CHF per euro GBP per euro JPY per euro Oil (USD/barrel) y Gov. bond (A) m Euribor Author: Walter Pudschedl Source: UniCredit Research UniCredit Bank Austria AG Economics & Market Analysis Austria Rothschildplatz1 1 Wien Telephone +3 () Fax +3 () econresearch.austria@unicreditgroup.at as of March Rev. 1) 19 Rev. 1) Rev. 1) GDP (real, change in %) Inflation (CPI, in %) Unemployment rate (in %) ) Revision since last report Cautious start to the year noticeably lower GDP growth in 19 and Following a.7% increase in GDP for 18 as a whole, the slowdown in the Austrian economy is now clearly visible, as illustrated by the decline in the UniCredit Bank Austria Business indicator to.6 points in January. We expect the Austrian economy to respond well in 19 to slowing global trade through the effects of growing political uncertainty and protectionist measures with robust domestic demand. However,the most recent data suggest that there is a greater than previously expected slowdown, at least at the beginning of the year. We therefore lowered our growth forecast for 19 to 1.6%. Also for the outlook is cautious. A strong weakening of the economy in the USA, which should even lead to a slight and brief recession in the middle of the year, will ultimately also confront the domestic export industry with further increasing challenges. We expect a decline in economic growth in Austria in to only %. Improvement trend in the labor market continues economic slowdown will stop the trend The favorable economic development in 18 enabled employment growth of.% or nearly 9, persons compared to the previous year. The unemployment rate has therefore dropped noticeably from 8.5% in 17 to 7.7% in 18. In the first few months of 19, the labor market s improvement trend, sustained by the construction industry favoured by the good weather, continued, but with the onset of economic slowdown, employment momentum will no longer be enough to further reduce unemployment. We expect an unemployment rate of 7.3% for 19 and. Inflation drops to 1.7% in January no interest rate hike by the ECB After inflation above the % mark yoy in the second half of 18 due to higher energy prices, the inflation trend has begun to turn around the turn of the year. Inflation fell to 1.7% yoy in January. The sharp drop in oil prices since mid-october from over USD 85 per barrel to as much as USD 53 will continue to contribute to moderate inflation in the first few months of 19, with values below % in Austria, despite the renewed slight upward movement of oil prices in recent weeks to just over USD 6 per barrel. After averaging % in 18, we expect inflation to amount only to 1.8% in 19. Both the low oil price and the slower economy due to demand will cause inflation to fall slightly. With an average of 1.9% in, inflation will then be the twelfth year in a row above the benchmark in the eurozone. With the decline in the price of oil and, above all, the slowdown in the economy, which will intensify in, the window of opportunity for the normalization of monetary policy that has just begun, could soon close again for the European Central Bank. Despite the end of the asset purchase program at the end of 18, a strongly supportive monetary policy will continue to be implemented. A new series of quarterly long-term loans (TLTROs), each lasting two years, from September 19 to March 1 has been announced and interest rates are expected to remain stable at least until the end of 19, according to the ECB. We expect constant interest rates until the end of. UniCredit Research Page

3 Business cycle AFTER THE HIGHEST GROWTH IN THE CURRENT BUSINESS CYCLE 18, SLOWER PACE IN 19/ GDP (real change, yoy in %) At.7%, economic growth in 18 has reached the highest level in the current business cycle. However, since the second half of 18, the economic engine has been running at a declining speed GDP (real change, qoq and yoy) The current data indicate a restrained start to the year. The pace of growth will decrease to around % in 19/ qoq, seasonally adjusted (right-hand scale) - yearly average GOOD ECONOMIC MOOD IN AUSTRIA, BUT THE OPTIMISM IS MUCH LOWER NOW Confidence indicators (standardised) Industry confidence Global industry confidence Consumer confidence Construction confidence Services confidence UniCredit Bank Austria Business Indicator 6 GDP (real change yoy in %) UniCredit Bank Austria Business Indicator 6-1/15 1/16 1/17 1/18 1/19 Concerns about the global economy have worsened sentiment in the export-oriented industry. Confidence is also falling in other areas, with the exception of construction /15 1/16 1/17 1/18 1/19 The falling trend in our Business Indicator since the beginning of 18 continued at the start of 19, falling to.6 points. ECONOMIC FORECAST Real change yoy in % GDP Industrial production Private consumption Gross fixed capital formation Exports Imports CPI change yoy in %) Unemployment rate (in %, nat. def.) Unemployment rate (in %, Eurostat def.) Current account balance (in % of GDP) General Government balance (in % of GDP) Public debt (in % of GDP) Source: Statistik Austria, WIFO, Thomson Reuters Datastream, EU Commission, UniCredit Research UniCredit Research Page 3

4 Demand RETAIL TRADE WITH RISE IN SALES AT THE START OF THE YEAR Retail sales Retail sales, real (seasonal adj., 1=1) 1 months average 98 1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 1/19 Despite a good mood and a good situation in the labor market, real growth in retail sales in 18 has been very moderate at just.3%, however, show a slight upturn at the beginning of 19. CONSTRUCTION UNDER FULL CAPACITY UTILIZATION Construction sector Construction output (real, seasonally adj., 1=1) 1 months average 1 1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 The construction boom continues. After rising by nearly 6% in 17, annual average in production increased by 6.5% in real terms in 18. AUSTRIA S INDUSTRY IS LOSING MOMENTUM DUE TO DECREASING SUPPORT FROM ABROAD Industry Industrial production (real, seasonally adj., 1=1) 1 months average 1 1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 After a strong start to the year, industry lost pace during 18. On an annual average, production increased by 3.7% after 5.% in UniCredit Bank Austria Purchasing Managers' Index 5 5 seasonally adjusted not adjusted 1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 1/19 At the beginning of 19, the slowdown in Austrian industrial activity continued. UniCredit Bank Austria PMI dropped to 51.8 points in February EXPORT DEMAND EASES Exports and imports (monthly data, in EUR million) 13,5 13, 1,5 1, 11,5 11, 1,5 Exports, s.a. Exports, trend 1, Imports, s.a. Imports, trend 1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 18, exports and imports respectively rose by 6.% yoy. Rising uncertainty, also in connection with the discussion about US import duties, has noticeably afflict the dynamics of exports for several months. Current account balance (in % of GDP) Goods 5. Primary income. Current account Services Secondary income In 18 the current account surplus is expected to have risen to over % of GDP, thanks to a slight improvement in the service and merchandise trade surplus Source: Statistik Austria, WIFO, OeNB, IHS Markit, UniCredit Research UniCredit Research Page

5 Labor market, inflation, public budget INFLATION FALLS TO 1.7% IN JANUARY AND WILL REMAIN BELOW % YOY DUE TO LOW OIL PRICES Inflation (with effects resulting from goods contained in the basket) % Transport Housing, water, energy.5% Food % Other effects % Total CPI % % % -% %.5% % % % % % -% -% -% 1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 1/19 With the decline in oil prices, inflation declined in Austria in January 18. At 1.7% year-on-year at the start of the year, inflation averaged % in 18 as a whole. Inflation (CPI, yoy change in %).5 1/15 1/16 1/17 1/18 1/19 1/ Inflation should remain just below the % mark in the coming months due to the low oil price. For 19 we expect an average inflation of 1.8% and 1.9% for. EASING OF THE LABOR MARKET SITUATION COMPARED TO 18, BUT IMPROVEMENT TREND IS SLOWING Labor market 3,75 3,7 3,65 3,6 3,55 3,5 3,5 3, 3,35 3,3 3,5 3, Vacancies (absolute, s.a., right scale) Employment excluding persons drawing maternity benefits, military servie and training (in 1,, s.a.) 1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 1/19 8, 75, 7, 65, 6, 55, 5, 5,, 35, 3, 5, The positive development of the labor market slowed down again at the beginning of 19, even though the construction industry interrupted the declining employment trend in February due to the weather. Unemployment rate (national and Eurostat, seasonally adjusted) In February 19, the unemployment rate (seasonally adjusted) dropped to 7.%, supported by the high employment dynamics in construction, which is mainly due to the good weather. GOOD ECONOMY SUPPORTS BUDGET SURPLUSES AND FURTHER REDUCTION OF TOTAL DEBT IN 19/ national definition Eurostat definition 1/15 1/16 1/17 1/18 1/19 1/ Tax revenues (average monthly revenues, 1=1) Tax revenues, total Payroll tax 19 Corporate income tax VAT /15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 1/19 Public Households (in % of GDP) Budget balance Total public debt (right scale) tax revenues increased by % yoy. Both revenues from income tax and corporate tax have earned more than planned. Thus, the federal deficit has reduced to 1.1 billion euros..9 billion euros were the target for 18. The decrease of total public debt as a percentage of GDP will continue 19/. Even in absolute terms, a decline is expected thanks to a slight budget surplus. Source: Statistik Austria, BMF, UniCredit Research UniCredit Research Page 5

6 Data I 18 II 18 III 18 IV 18 9/18 1/18 11/18 1/18 1/19 /19 UniCredit Bank Austria Business Indicator GDP growth (qoq, annualized) Confidence Indicator eurozone manufacturing Germany France Italy Netherlands Spain UniCredit Bank Austria Eurozone Confidence Indicator Manufacturing UniCredit Bank Austria Purchasing Managers' Index (PMI) New orders New export orders Output Confidence indicator Austria manufacturing, total Industrial production Change against previous year (in %) Change against previous month (seasonally adjusted, in %) Foreign trade Exports (yoy change in %) Exports (mom change, s.a. in %, 3-MMAV) Imports (yoy in %) Imports (mom, s.a.. in %, 3-MMAV) Ex-Im (1 months cumulated, EUR billion) Construction Confidence indicator Retail trade Confidence indicator Retail trade nom. (change against previous year in %) Retail trade nom. (change against previous year in %, 3mav.) Retail trade real (change against previous year in %) Retail trade real (chg. against prev. month in %, s.a., 3mav.) Automobile trade nom. (change against prev. year in %) Tourism Overnight stay (change against previous year in %) Labor market Employment*) (change against previous year in %) Employment (s.a., change against previous month in %) Unemployed (change against previous year in ) Unemployment rate (in %, s.a.) Prices CPI (change against previous year in %) HCPI (change against previous year in %) Prices of raw materials (change gainst prev. year in %) Crude oil (change against previous year in %) Financial market 3M Euribor year government bonds (yield in %) USD per euro Total loans (change against previous year in %, eop) Consumption loans (change against prev. year in %, eop) *) excl. maternity/paternity leave, military service and training programs Source: UniCredit Research UniCredit Research Page 6

7 Money and capital market MONEY MARKET AND LONG-TERM INTEREST Euro money market (in %) 3-months Euribor Repo..3 Marginal lending facility Deposit facility y Government bond Austria (yield) (in %) spread A-GE (right scale) Austria Germany STOCK MARKETS USA - Eurozone Germany - Austria 8, 6,,,, Dow-Jones Euro-Stoxx 5 (right scale) 5,,5, 3,5 3, 15, 1, 13, 1, 11, 1, DAX 3 ATX (right scale) 5,,5, 3,5 3, 18, 16, ,5, 9, 8, ,5, FX TRENDS USD per euro SFR per euro Source: Thomson Reuters Datastream, UniCredit Research UniCredit Research Page 7

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