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  5. > Austria Business Forecast Report Q4 2014

Austria Business Forecast Report Q4 2014

  • September 2014
  • -
  • Business Monitor International
  • -
  • 23 pages

Core Views
The Austrian economy will remain in the doldrums in 2014 and 2015
as weak demand, both externally and internally suppresses private
consumption and fixed investment levels. The ongoing tensions
between Russia and the West will also deter firms from investing in
fixed capital until the geopolitical landscape becomes clearer.
The more vocal opposition from the Austrian government to Russia’s
actions in eastern Ukraine will win support from other EU member
states, but will likely hinder the chances of Gazprom’s proposed
South Stream natural gas pipeline, which is set to terminate in
Austria, being constructed. This could lead to trouble for Austrian
banks such as Raiffeisen International, which have a large presence
in the Russian market, and could end up as the subject of retaliatory
The change in leadership of the junior coalition partner, the centreright
Austrian People’s Party (ÖVP), will not fundamentally alter the
functioning of the ‘grand coalition’ administration. In fact, given that
new ÖVP leader Reinhold Mitterlehner holds a view on tax cuts
much more in line with Chancellor Werner Faymann’s senior coalition
partner Social Democrats (who support tax cuts in order to boost
growth) we could see smoother progress on legislation between
the two parties. Mitterlehner’s stance is in contrast to outgoing ÖVP
head and fiscal hawk Michael Spindelegger who only supported tax
cuts if it did not result in a wider budget deficit.

Major Forecast Changes
W e have revised down our forecast for real GDP growth in 2014 and
2015, from 1.5% and 1.9%, to 0.9% and 1.4% respectively. External
demand from the rest of the eurozone will remain weak in the coming
quarters, reducing net exports’ contribution to headline growth
compared to previous years. Meanwhile, we believe there will be
a lack of investment as firms defer from spending on fixed capital
while the Ukraine crisis continues to rage, and capacity utilisation
remains below the long-term average.

Table Of Contents

Austria Business Forecast Report Q4 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
Little Political Fallout From Vice Chancellor's Resignation8
The resignation of Austrian Vice Chancellor and People's Party leader Michael Spindelegger on August 26 is unlikely to presage a
collapse of the Social Democrat- People's Party 'grand coalition' government. Given Spindelegger's fiscal conservatism, the selection of
a more centrist People's Party leader could assist in improving relations with their centre-left Social Democrat senior coalition partners.
Tab le: Politica l Overvie w..8
Chapter 2: Economic Outlook 11
SWOT Analysis 11
BMI Economic Risk Ratings... 11
Economic Activity... 12
Eurozone, Russia Woes To Suppress Growth..12
Austria's economy recovery will struggle to get out of first gear over the course of 2014 and 2015, as a sluggish recovery in the rest of
the eurozone reduces net exports, while uncertainty surrounding future EU-Russia relations deters fixed investment. We have revised
down our real GDP growth forecasts for 2014 and 2015 from 1.5% and 1.9% to 0.9% and 1.4% respectively.
Tab le: Economic Activit y..12
Regional Exchange Rate Policy . 14
EUR: Structural Bearish View Playing Out14
Our long-running bearish EUR view is finally playing out. Even if the euro bounces in the coming months (given how bearish sentiment
has now turned and how inflated expectations of aggressive monetary easing have become), the direction versus the dollar and a
broad set of currencies remains lower over a multiyear period. Economic stagnation and further monetary expansion will prove a potent
cocktail that will drive down the value of the euro, particularly against the US dollar and British pound which are supported by healthier
economic trajectories and the prospect of near-term monetary tightening.
Table: Eurozone Currency Forecast.14
Regional Monetary Policy... 15
ECB Easing: Signs Of Growing Anxiety.15
The ECB has embarked on additional monetary easing at the September meeting, earlier than we had expected. The ECB's almost
knee-jerk reaction to the longstanding deterioration in headline inflation and macro data suggests that the central bank has started to
backpedal fast, having previously played down the risks of deflation. We do not view the new measures as a major new expansion of
monetary policy, but believe that the ECB's actions and reference to the size of its balance sheet indicate that the tide is starting to turn,
and that far more aggressive monetary stimulus could be on the cards.
Chapter 3: Key Sectors.. 17
Renewables.. 17
Table: Electricity Generating Capacity, Data And Forecasts..17
Tab le: Electricit y Generati ng Capacit y, Long-Term Forecasts .. 18
Other Key Sectors... 21
Tab le: Pharma Sect or Key Indicat ors 21
Tab le: Telec oms Sect or Key Indicat ors 21
Tab le: Infrastructure Sect or Key Indicat ors ...21
Tab le: Aut os Sect or Key Indicat ors ...22
Chapter 4: BMI Global Assumptions. 23
Global Outlook. 23
Eurozone Downgrade On Poor Q214..23
Tab le: Globa l Assumpti ons.23
Tab le: Deve loped States , Rea l GDP GrowtH , %...24
Tab le: Emergi ng Markets , Rea l GDP Growth, %..25

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