Several beneficial factors will enable the USA to enjoy the highest pace of growth among the industrialised economies in the
years to come: lending behaviour has recovered from the financial market crisis and is working more smoothly nowadays than,
for example, in the euro area. Investment is boosted by improving supply conditions for commodities, as shale gas and shale
oil will have a major impact on energy markets. The labour force is growing rapidly and budgetary restrictions are expected
to ease. While fiscal policy will turn less restrictive also in the euro area, the planned cuts in expenditure will largely
occur in countries that are still struggling with the crisis and its repercussions (Portugal, Spain, Italy). The fragility
of the banking sector is one of the key challenges for the euro area. Each of its members is also facing specific problems
– such as the heavy export bias of the German economy, the under-developed institutional and regulatory framework in Italy
or the extremely high unemployment in Spain.
In Austria, prospects for a pick-up in economic activity are firming. WIFO's latest Business Cycle Survey as well as the most
recent expansion of production point to a gradual recovery of industrial activity. WIFO's Leading Indicator also improved
for the third time. Leading indicators for the euro area and the EU as a whole also signal a continuation of the upward trend.
GDP grew at a seasonally and working day adjusted rate of 0.2 percent in the third quarter, compared with the previous quarter.
Hence the upturn set in at only a modest pace. In the EU countries, economic activity remains sluggish and uneven. Weak price
dynamics prompted the European Central Bank to cut its benchmark interest rate.
After six consecutive quarters of decline, GDP in the euro area headed up in the second quarter 2013. Business surveys suggest
that the positive trend will continue in the near future. The recovery will nevertheless be held back by the many existing
structural problems. Due to the delayed cyclical pick-up, GDP growth for 2013 will remain subdued also in Austria, at a projected
0.4 percent. Towards the end of the year, domestic activity should gain momentum, raising the annual rate of growth to 1.7
percent in 2014. Despite this rebound, the unemployment rate will rise to a new high. Headline inflation is set to remain
at a moderate 2 percent.
In the EU, signs are mounting that economic conditions are improving. The US economy is expected to keep growing at a robust
pace in the near future, while emerging market economies have not yet regained their former strength. As regards the Austrian
economy, business surveys also suggest an increase in economic activity in the coming months. At present the forces driving
the economy are still very weak, however.
The Austrian insurance market contracted in 2012, mainly due to a decline in life insurance simple premium payments. In private
health and non-life insurance, however, the number of insured risks increased. In both areas, the influence of price increases
during the year was stronger than the slightly positive volume effect. Persistently low interest rates pose a severe challenge
to insurance companies' investment policy. In 2012, low write-offs allowed for an increase in the return on assets.
In 2012, the recession shaped the development of unit labour costs in Austria. Labour costs in the manufacturing of goods
increased by 3.2 percent, while labour productivity developed very weakly (+0.1 percent). This represents a rise in unit labour
costs of about 3 percent. However, Austria's international competitiveness compared to the average of all trading partners,
as well as to Germany, improved slightly in 2012 because productivity developed even less favourably among the trading partners.
The Austrian economy also remains tepid in a context of weak economic activity in Europe. The export-driven manufacturing
sector is recovering only slowly; the production index has stabilised in recent months, although it suffered a renewed decline
in May. The latest leading indicators show only little improvement; companies still expect the economic situation to remain
tense. Trade and tourism have recently seen a decline in sales. The economic weakness continues to weigh on the labour market;
employment growth decelerated in July compared with the previous month, and was accompanied by a renewed increase in the number
of unemployed persons.
While in the USA, the cyclical recovery is ongoing, it has been absent so far in the euro area. The sizeable and simultaneous
retrenchment of government demand in several EU member countries, the rise in unemployment, restraint on bank lending and
sluggish global trade all weigh on activity in Europe. Key Austrian export markets are stagnating or in recession, dampening
the domestic investment climate. Lean real income gains and a rising saving ratio limit the scope for private consumption
growth. For the whole of 2013, GDP is expected to edge up by a modest 0.4 percent. With international trade picking up, demand
and output growth should accelerate to 1.6 percent in 2014.
The economic crisis has laid open deficiencies in the construction of the European Economic and Monetary Union (EMU). As a
consequence, the European Council and the Commission have proposed reforms for the completion of EMU. In a first step towards
an integrated Banking Union, a lighter version of a common bank supervision has been agreed. However, key elements to secure
the stability of the euro area are still missing. Measures taken under the acute pressure of the crisis are confined to structural
reforms and have de facto suspended the operation of automatic stabilisers in the crisis countries.