“The Austrian economy is currently in a very good shape,” says Matthias Reith, financial analyst at RBI. With real GDP growth of 0.8% qoq in both Q2 and Q3 (Wifo trend business cycle component) business cycle dynamics in the first nine month of 2017 were as strong as in the respective period of 2011. Consequently, in terms of GDP growth Austria is currently a frontrunner in the euro area, although the present strong momentum should be viewed also as a catch-up effect, considering the sluggish economic activity seen for the past several years.

Domestic demand and exports as drivers

In the first three quarters of the year, business cycle dynamics were driven by both domestic demand as well as exports. “Exports are enjoying tailwinds from the positive external demand conditions,” Reith adds. Private consumption continued growing at a healthy pace despite the fading effect of the tax reform that came into force in early 2016, as consumption was supported by improving labour market conditions. Investment was also a supportive factor for business cycle dynamics despite the slowdown in Q3. The positive development here was not limited merely to equipment investment, as construction investment finally gathered momentum in 2017. Having said that, the cycle of equipment investment is already rather mature by historical standards.

Positive outlook for the months to come

The outlook at least for the coming months still appears to be positive. For instance, the purchasing managers’ index (PMI) for manufacturing came in at 59.4 points in October and thus not far below its cyclical high of 61.1 reached in August. In view of strong business cycle dynamics up until Q3 and the positive outlook at least for the months to come, Raiffeisen Research’s analysts expect real GDP growth of 2.8% in 2017. “The good economic conditions should continue until at least 2018, although compared to 2017 we already expect to see a lower growth rate of 2.2% for next year, and 1.4% for 2019,” explains Reith. GDP growth for 2017 as a whole and in the two following years should be broad-based.

Matthias Reith, Analyst at Raiffeisen RESEARCH