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Austrian Economy Sliding Into Recession

Recession © photocase.com/Chobe

© photocase.com/Chobe

February 20, 2009

Recovery not in sight until 2010

Austria as a small country in the middle of Europe is also affected by the global economic decline. The Austrian economy shrank – for the first time since 2001 - ín the last quarter of 2008 by 0.2% (as compared to the previous quarter). The downward trend was mainly driven by the export-oriented industries. Austria’s main trading partners Germany and Italy registered an even higher decline of around 2% in their quarterly statistics. With no quick improvement in sight, the Austrian economy will also experience a decline in the first quarter of 2009 and will therefore be officially in a recession (=defined as two consecutive quarters of falling GDP). For 2009 overall, the forecasts were readjusted to a negative growth rate of -1.6%.


Austria is a country with a small home market (8 mill. people) and an internationally-oriented economy. It is therefore very much dependent not only on the economic well-being of its European neighbors, but also of distant markets like the U.S. Europe’s economic decline started about three months later than the U.S., and it will probably take three months longer to get out of this phase. For 2009, Austrian economists still forecast an increase in consumption (+1%) but decreases in private investments (-3.3%), an increase in the unemployment rate to 7% and an inflation rate of 0.9%. The economy is not expected to be in better shape again until 2010 with GDP growth projected at 0.7%.


What’s also worrisome for Austria is the deterioration of the economic situation in the countries of Central and Southeastern Europe. For many Austrian companies this area is practically considered as a ‘home market’. After booming years with economic growth of over 5% p.a., these economies only grew in the second half of 2008 by a disappointing 0.6%. The forecasts for 2009 point to a reduction of 0.8%. Differentiation between countries in the region will increase. Recovery prospects are strongest in countries like the Czech Republic or Poland which did not previously overheat. Austrian banks lend an amount equal to 80% of the overall Austrian GDP to the region. They do the most business with this region than banks in any other country. The currencies in these emerging markets have weakened significantly. Due to these devaluations and the perceived higher risks, international investors have postponed investment plans for the region and are not participating in the remaining privatization tenders.

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