Austria: Economy grew at a stable but weak pace in Q3
The economy grew at a steady, albeit meager, pace of 0.1% in quarter-on-quarter seasonally-adjusted terms in the third quarter. This matched the revised 0.1% increase logged in the second quarter (previously reported: +0.2% quarter-on-quarter), although undershot market expectations of an acceleration. Moreover, annual growth decelerated to 1.5% in the third quarter from a revised 1.8% rise in the second (previously reported: +1.7% year-on-year).
Although domestic demand remained a key pillar of growth, private consumption and fixed investment growth lost a step in the third quarter. Household expenditure grew 0.2% quarter-on-quarter (Q2: +0.3% qoq), likely influenced by increased consumer pessimism and a pick-up in unemployment as inflationary pressures eased slightly. Fixed investment growth also softened to 0.2% in the three months ending in June, down from the 0.3% expansion logged in the second quarter. This came amid the first decline in equipment investment since 2014 and slowing construction investment growth. On the other hand, public consumption accelerated to 0.2% in Q3 from flat growth in the prior period.
Meanwhile, the external sector continued to support the economy, amid a stabilization in export and import growth after last year’s boom. Exports of goods and services rose 0.7% quarter-on-quarter in the third quarter, up a notch from 0.6% in the previous quarter; imports of goods and services, meanwhile, increased 0.6%, down from 0.8% in the second.
Next year, the economy seems set to cool further. Domestic demand will soften on the back of weakening fixed investment growth, despite stronger public consumption growth and robust private consumption. Moreover, the external sector’s performance will also likely moderate amid lingering external headwinds and persistent Brexit uncertainty.
The economic panorama will also depend on the new government, the formation of which could still take some time. As highlighted by Inga Fechner, Austria economist at ING: “there seems to be no rush to form a new government. Sebastian Kurz […] has announced that he will continue talks will the Green party until November 8 and will then decide with whom the ÖVP will enter into actual coalitions negotiations. According to recent reports, talks between both parties are going well. However, it remains to be seen how differences regarding migration, the environment and the EU will play out.”