GRAPH: The Austrian stock market climbed 200 percent since September 2002
The stellar performance in comparison to the DAX in Germany can be attributed to the growing exposure of Austria's blue chip companies to the flourishing economies in Eastern Europe. The recent surge to it's all time high was a result of speculation that Unicredito Italiano will have to raise its cash offer for the 25 percent of the free float of Bank Austria Creditanstalt (BA-CA) listed. 75 percent of BA-CA is held by Bavarian HVB. BA-CA is the leading investment bank in Eastern Europe and its shares rose from 28 Euros to a record high of 89.60 Euros in less than two years. HVB offers only 70,04 Euros in cash or 20 Unicredito shares and market participants expect that Unicredito will improve it's offer for the highly profitable bank.
Two other truly international companies are OMV, a vertically integrated major player in East European oil and fireproof material producer RHI, a world market leader in its field. Both are trading near record highs as well.
The good mood amongst market players because of the nice performance of the equity market stands in contrast to economic developments in Austria. The Austrian Institute of Economic Research (english site) projects GDP growth to rise only to 2.2 percent after 2 percent in 2004. The lion's share of it will come from industrial output which is expected to slow to 4 (4.8) percent this year while consumer expenditure will rise to 2 (1.5) percent.
Austria's export oriented industry will have to tighten its belts in the face of an expected decline of the growth rate of exports to 6 (12.2) percent this year. Imports will equally grow 6 (8.4) percent this year. Official inflation is projected at 2.5 (2.1) percent this year.
Austria shines in comparison to Germany, its most important trading partner, in many aspects. Unemployment is currently 4.5 percent, the same as last year. The budget deficit will rise to 2 (1.3) percent of GDP this year, but this is still well below the Maastricht criteria which require Eurozone member sto stay below 3 percent. Only problem there is that the budget deficit rises despite massive cuts in the social security and health system of Austria, a country once known for its generous welfare system.
The savings rate is close to 10 percent, creating a problem for the retail sector. But the high savings rate expresses the fear of the Austrians that their state pension will not be enough to maintain their lifestyle after retirement. The ruling conservative-right wing coalition has cut retirement benefits drastically and encourages people to put their money into private pension plans.
The low inflation rate covers actual increases in the cost of living as rents have dramatically increased over the last years. Expenditures for housing rose 7 percent last year only.
This has lead to a dangerous trap for the so called middle class who see themselves threatened by outsourcing and low real wage gains and competition by East European workers. Small businesses in the service sector have to compete with East European laborers who are officially still fenced out for another seven years from the west European job market.
A survey from April showed that 2 million Austrians or 25 percent of the population will come under financial stress by just one extraordinary bill. 400,000 households are indebted well below their means already.
This stands in stark contrast to the listed companies, most of them published record profits for the financial year 2004, with banks taking the lead. The income gap is not only in the US widening.