Net exports have been a key driver of economic growth over the past decade for Austria. However, declining cost competitiveness and subdued demand from regional trading partners, most notably Germany, will see this component's contribution to real GDP growth remain subdued in the years ahead. Gazprom's South Stream pipeline will continue to receive support from the Austrian government despite the threat of EU sanctions if the line is constructed. Bulgaria, where South Stream enters mainland Europe, has already been warned about the potential of EU infringements, and we believe a similar threat to Austria would place strains on Vienna's relationship with Brussels.
The nationalist Freedom Party of Austria (FPÖ) performed worse than we had anticipated in the European Parliamentary elections in May, coming third behind the parties of the governing coalition: the centre-left Social Democrats and centre-right People's Party. We do not believe this marks the start of a decline for the FPÖ as a political force. Eurosceptic sentiment is still strong in Austria, and support for the two main parties is likely to be hit by the establishment of a partly taxpayer-funded 'bad bank' for nationalised lender Hypo Alpe Adria.
Major Forecast Changes
On the back of the one-off fiscal impact of the Hypo Alpe Adria 'bad bank' on the government balance sheet, we have raised our forecast for Austria's budget deficit to 2.8% of GDP in 2014, from 2.6% previously. However, given the government's overwhelming long-term commitment to eliminating the budget deficit at the expense of government funded projects and public sector pay, we believe the deficit will narrow in subsequent years, reaching a surplus by 2021.
Table Of Contents
Austria Business Forecast Report Q3 2014 Executive Summary. 5 Core Views..5 Major Forecast Changes5 Key Risks To Outlook5 Chapter 1: Political Outlook. 7 SWOT Analysis.. 7 BMI Political Risk Ratings 7 Domestic Politics.. 8 South Stream Support Risks EU Backlash..8 Gazprom's South Stream pipeline will continue to receive support from the Austrian government despite the threat of EU sanctions if the line is constructed. Bulgaria, where South Stream enters mainland Europe, has already been warned about the potential of EU infringement, and we believe a similar threat to Austria would place strains on Vienna's relationship with Brussels. TABLE: Political Overvie w..8 Chapter 2: Economic Outlook 11 SWOT Analysis 11 BMI Economic Risk Ratings... 11 Economic Activity... 12 Subdued But Stable Growth Ahead12 Despite a solid real GDP growth reading in Q114, the Austrian economy will struggle to reach pre-crisis rates of economic expansion in the years ahead. Crucial German export demand growth is set to slow, and the government's long-term drive to eliminate the budget deficit will rein in state expenditure. Table : Economic Activit y..12 Regional Monetary Policy... 14 Assessing The Aftermath Of ECB Policy Action14 The European Central Bank (ECB) has delivered on nearly all of the policy options that we were expecting for the June 5 meeting. This is a step in the right direction in terms of warding off the risk of deflation and will be positive for European equities and sovereign bonds. However, we warn - as we have done countless times during previous easing rounds - that the efficacy of ECB policy action will be limited absent structural reforms in the eurozone at the national and federal level. Chapter 3: Business Environment. 17 SWOT Analysis 17 BMI Business Environment Risk Ratings.. 17 Chapter 4: Key Sectors.. 19 Pharmaceuticals and Healthcare... 19 TABLE: Pharmaceutical Sales, Historical Data and Forecasts..20 TABLE: Healthcare Expenditure Trends, Historical Data and Forecasts. 21 TABLE: Gover nment Healthcare Expe nditure Tre nds , Hist orical Data and Forecasts .. 21 TABLE: Private Healthcare Expe nditure Tre nds , Hist orical Data and Forecasts . 21 Other Key Sectors... 23 table: Autos Sector Key Indicators...23 table: Infrastructure Sector Key Indicators...23 table: Telecoms Sector Key Indicators23 Chapter 5: BMI Global Assumptions. 25 Global Outlook. 25 Emerging Market Deceleration25 Table: Global Assumptions.25 Table : Devel oped States , Real GDP GrowtH, %...26 Table : BMI VERSUS BLOOM BERG CON SENSUS REAL GDP GROW TH FORECASTS, %. 26 Table : Emergi ng Mar kets , Real GDP Growth , %..27