Signs of Cyclical Recovery Becoming More Frequent

For the second month in a row, the regular WIFO business survey is pointing to a recovery in the Austrian manufacturing sector. This is consistent with an upturn in leading indicators in the USA and the EU. Still, no relief is as yet in sight for the construction sector and the labour market. According to forward-looking indicators, a business cycle turnaround may be imminent. In the USA, the purchasing managers index jumped in February, while in Germany the ifo index for the business climate has been trending up for the last couple of months. For the euro area, the GDP indicator developed by a group of European economic research institutes (Euroframe) suggests rates of growth of 1.4 and 2.0 percent, respectively, for the first and the second quarter. The main drivers of the rebound are declines in interest rates and oil prices as well as improved expectations in the USA and in Europe. At this early stage, negative shocks may jeopardise a still fragile recovery. If, however, the positive expectations are confirmed, Europe has managed to avoid a recession. In Austria also, the economy has probably reached the trough of the cycle. Business sentiment has improved for the second consecutive month in February. In particular, expectations for the near future have turned more optimistic. Incoming orders, the business outlook and production expectations have been given better ratings by industrial firms than over the last months. In the construction sector, sentiment has stabilised in civil engineering, brought about partly by the stimulus programmes launched by the federal and the state governments. No upturn is yet visible for building activity, notably for new-home building. Data on exports and production only go as far as the end of last year. As could be expected, they show declines, thereby confirming earlier survey data. On the labour market, no turnaround is as yet discernible. The cyclical slowdown and the crisis in the construction industry have worsened the situation, leaving more negative marks on the jobless than on the employment data: while unemployment rose by 38,700 year-on-year in February, employment went down by 7,300 over the same period. The difference is explained by the sizeable increase in labour supply, due inter alia to a net inflow of foreign workers and the rise in the statutory early retirement age. Contrary to expectations held in some quarters, inflation has not been boosted by the introduction of euro notes and coins early this year. Abstracting from price increases for seasonal goods (fruits, vegetables), consumer prices edged down from December. Apparently, dual price advertising, price surveillance and competitive pressure have all had a positive effect in this regard. With inflation having gained momentum in other western European countries, the Austrian rate is now clearly below the average for the euro area.