Austria: Economy clocks a mild expansion in Q1
A second national accounts release confirmed that the economy expanded 0.2% on a seasonally and working-day adjusted quarter-on-quarter basis in the first quarter. The upturn outpaced the upwardly revised 0.1% increase of Q4 2023 and was the strongest result since Q2 2022. On an seasonally adjusted annual basis, economic activity contracted 1.3%, matching both the preliminary estimate and Q4 2023’s downturn.
Domestically, the quarterly improvement chiefly reflected improving private consumption growth, which accelerated to a two-year high of 0.8% in seasonally adjusted quarter-on-quarter terms in Q1 (Q4 2023: +0.2% s.a. qoq); nine-quarter low inflation will have bolstered household budgets. Moreover, government spending dropped at a milder pace of 0.5% (Q4 2023: -1.8% s.a. qoq). Less positively, fixed investment swung into contraction, falling 2.1% in January–March, below the 0.8% increase recorded in the prior quarter.
On the external front, exports of goods and services returned to growth following Q4 2023’s flat reading, expanding 2.6% in Q1 and clocking the best result in nearly two years. Similarly, imports of goods and services rebounded 2.6% (Q4 2022: -0.5% s.a. qoq).
Our panelists expect the economy to gain steam in Q2 and have penciled in a shallow rebound for 2024 as a whole; 2023 marked the worst contraction in 14 years, barring 2020’s pandemic-induced downturn. Domestic demand will regain momentum on the back of election-related spending and declining inflation. Moreover, a recovering German economy will prop up Austrian exports of goods and services, adding further impetus.
Erste Group analysts commented:
“We expect the extremely moderate economic recovery to continue in the coming months. The recovery will be supported by consumer demand, which will benefit from an increase in real incomes. Foreign trade will only develop moderately due to the weaker economic development of important trading partners and will therefore only be able to support investment to a limited extent.”
Economists at the EIU added:
“Although we do not expect the economy to return to recession, there is little reason for much optimism in 2024, as the main drivers of growth are all likely to remain depressed. Monetary policy, in both Europe and other major economies, will remain tight until the second half of the year, which will hamper credit growth.”