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Austrian Manufacturing Fails To Expand

James Boston
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Austrian Manufacturing Fails To Expand

The recovery in the Austrian manufacturing sector appears to have failed to achieve lift off according to the latest figures released this morning. The July Industrial Production number has contracted -1.2% year on year following a positive reading of 1.0% the previous month. There was an expectation for continuing growth in this sector with analysts forecasting a 1.4% expansion in the July figures. Despite a positive run of growth in the countries manufacturing area in the first quarter of this year the trend has predominantly been negative for much of the past six quarters. Today’s figures should not really come as a surprise, the Manufacturing PMI data for the Austrian economy has been in consistent, albeit gradual, decline since the beginning of the year and is currently hovering just above the contractionary delineation mark of 50.

The overall economy in Austria is showing signs of faltering, just last week two major economic think tanks dramatically cut the country’s growth forecasts for the remainder of this year. The Austrian Institute for Economic Research (WIFO) and the Institute for Advanced Studies (IHS) both slashed full year 2014 predictions for GDP expansion to just 0.8%. It was only during the summer that the WIFO and HIS were forecasting expansion of 1.7% and 1.9% respectively. Q2 growth came in a disappointing 0.2% following on from the first quarters 0.1%, Austria however is continuing to tick over and although growth is minimal there has been only one contractionary quarter reported in the last four years.

International observers, including the International Monetary Fund (IMF) have pointed towards Austria’s punitive tax system as a major constriction on economic growth. Labour taxation in particular is proving a significant cost, the difference between net and gross pay in Austria is one of the highest in the OECD. The need for tax reform has been acknowledged by the Austrian authorities, the ability to implement such reform however remains in question.

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