Recovery thanks to rising exports in Austria

Austria’s GDP declined 3.4% in 2009, due mainly to a drop in economic activity in the first half of last year. However, recovery gained momentum in the second half of the year and in the first months of 2010, thanks to increased stock investments and rejuvenated exports. According to the Austrian Statistics Office, private consumption has been robust in the first quarter of 2010, with retail turnover increasing 4.1% year-on-year. The Austrian National Bank expects growth to pick up 0.8% in Q1 and 1.9% in Q2 of 2010, quarter-on-quarter.

Nevertheless, the recovery in industrial production remains fragile, not least because business loans have decreased substantially. According to the Austrian National Bank, new business lending by banks fell 1.7% in 2009, and this continued into 2010, with the volume of new business loans decreasing by Euro 1.5 billion from January to February, to 5.7 billion. However, in a recent survey, bank credit managers have said that they expect business loan conditions to relax in Q2 of 2010.

Will corporate insolvencies decrease further?

In Q1 of 2010 the corporate insolvencies decreased 5.6% year-on-year to 1,604 cases, and the related outstanding receivables shrank by 27%. The number of construction insolvencies has decreased, while the number of insolvencies in the machines and metals sectors has levelled off. However, it is still too early to assume this to be a trend, as many companies still have to close their annual accounts and some sectors, such as consumer goods, that have so far avoided a drop in business, could feel the effects this year of rising unemployment and an end to income tax relief.

After much consultation, the reformed Austrian corporate insolvency legislation will come into force on 1 July 2010 [originally scheduled for 1 January 2010], and is designed to overcome troubled companies´ inhibitions about filing for bankruptcy. Its main objective is the timely initiation of insolvency proceedings to improve the likelihood of successful financial restructuring and of creditors´ receiving satisfaction for their claims. This will be achieved primarily by amending the procedural laws governing forced composition and bankruptcy proceedings, but the reform means considerable interference in the rights and powers of both secured and unsecured creditors.

The IMF forecasts that Austria’s growth will recover 1.3% in 2010. While companies´ investments will probably remain weak, due to still low capacity utilisation, industrial production will rise 4% this year after the 13% decrease in 2009, and exports will rebound further. That said, the recovery could lose some steam in the second half of the year, when the governmental stimulus packages expire. It is also uncertain how private consumption will develop in the second half of the year.