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Credit Report- Republic of Austria

Credit Report- Republic of Austria

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Published by Ciocoiu Vlad Andrei

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Published by: Ciocoiu Vlad Andrei on Jan 05, 2012
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Erste Group Research – Credit Report
Page 1
Erste Group Research
Credit Report | Government Bonds | Austria4January 2012
 
Credit Report: Republic of Austria
Aaa/AAA/AAA
Adrian Beck
adrian.beck@erstegroup.com
Gudrun Egger 
gudrun.egger@erstegroup.com
 
Ratings
Outlook
FitchAAAstableMoody'sAaastableS&PAAAwatch neg.
Source: Bloomberg, Erste Group Research
Key figures
201020112012F2013F
Population (mn.)8.48.48.58.5GDP growth (%)2.33.30.92.0Inflation (%)1.73.32.41.9Unemployment (%)4.44.24.44.4Govt. deficit*4.43.12.92.8Govt. debt*71.872.574.074.0
*percent of GDP
Source: Statistics Austria, Erste Group Research
Table of contents
Robust economy and institutions, high competitive strength.
 Measured in terms of GDP per capita (EUR 34,100), Austria is one of theeuro zone’s most prosperous countries with a strong and diversifiedeconomy and above-average long-term growth rates. The country’s highcompetitive strength is evidenced by the positive current account balancesince 2002. Another major advantage of Austria is the strength of itsinstitutions and the resulting social and political stability.
Flexible labour market.
The Austrian labour market boasts a highlyeducated and competitive workforce. At 4.1%, the unemployment rate isone of the lowest in the EU, even though this is owed to some extent to alow effective retirement age.
GDP growth subdued in 2012, set to pick up again in 2013.
Since early2011, GDP has exceeded its pre-crisis level. Continuing uncertainty over the sovereign debt crisis in the euro zone is expected to dampen growth in2012. For the coming years, we project above-average growth (2012e:0.9%; 2013e: 2.0%), which should be supported mainly by net exports andhousehold consumption.
Low debt.
In Austria, both private household debt and public debt arebelow the euro zone average. The biggest risk is posed by a futureinclusion of extra-budgetary debt in debt statistics. A so-called “debt brake”should make fiscal consolidation mandatory, however.
Aaa ratings from all agencies
.Austria’s greatest strengths include itslong-lasting social and political stability, a highly educated workforce, and adiversified economy. Among the risk factors are the Austrian banks'exposure to CEE and hived-off debt. The biggest risk for a downgradecomes from systemic risk in the euro zone.
Low funding risk, stable yields.
Efficient management of public debtfunding is reflected by the well-balanced maturity profile and the low fundingrisk. Austria’s spread over German Bunds (10y) is currently around 115bps, which is significantly above the long-term average and that of comparable triple-A issuers, which appears unjustified.
 
Erste Group Research
Credit Report | Government Bonds | Austria4January 2012
 
Erste Group Research – Credit Report
Page 2
Diversified economy
Robust economy and institutions, strong competitive position.
Austria has a strong and diversified economy without any major imbalances
.Nominal GDP amounted to EUR 286.2 billion in 2010, which isan economic output of EUR 34,100 per capita. This makes Austria one of the most prosperous countries of the euro zone. Adjusted for purchasingpower, economic output per inhabitant was 17% above the euro areaaverage and 7% higher than Germany's. According to Eurostat, actualindividual consumption
1
was 8% above the euro zone average. The basisfor this prosperity is a well-balanced and well-diversified economy.Furthermore, there are no signs of any general overheating of the realestate market. High expenditure on research and development (2.8% of GDP in 2010) and the resulting innovation process as well as a highly skilledand flexible workforce make the Austrian economy one of the mostcompetitive of the euro area.
Above-average GDP per capita
 Nominally and in purchasing power standards,EUR ‘000s, 2010
 Moderate rise in real estate prices
 Real estate price index excluding Vienna
 
0510152025303540AustriaGermanyFranceItalySpainPPSnominalEurozone
 
8090100110120130140150200020012002200320042005200620072008200920108090100110120130140150residential property price indexconsumer price index
 
Source: Eurostat, Erste Group Research Source: OeNB, Erste Group Research
 Prosperity is based on above-average GDP growth.
At an average of 1.6% p.a. in real terms over the past ten years, GDP grew faster than theeuro area average (1.2%) and Germany’s GDP (0.9%). After contracting in2009 (-3.8%), the domestic economy quickly recovered and has beenoperating above its pre-crisis level since the beginning of 2011. At aforecasted +3.3%, GDP growth was again above the average in 2011 andsurpassed general expectations. In the first three quarters of 2011, domesticeconomic output was up 3.9% over the same period of the previous year,while growth in the euro zone was running at a rate of only 1.8% and inneighbouring Germany at 3.5% over the same period.
 
1
Actual individual consumption consists of goods and services consumed by privatehouseholds regardless of who bought or paid for them.
 
Erste Group Research
Credit Report | Government Bonds | Austria4January 2012
 
Erste Group Research – Credit Report
Page 3
Above-average long-term growth
Development of GDP, real and sadj., 2005=100
 Exports and consumption are key contributors to GDP
Expenditure components, nominal values 2010
 
9095100105110115
     Q     1     2     0     0     5     Q     3     2     0     0     5     Q     1     2     0     0     6     Q     3     2     0     0     6     Q     1     2     0     0     7     Q     3     2     0     0     7     Q     1     2     0     0     8     Q     3     2     0     0     8     Q     1     2     0     0     9     Q     3     2     0     0     9     Q     1     2     0     1     0     Q     3     2     0     1     0     Q     1     2     0     1     1     Q     3     2     0     1     1
9095100105110115
Austria Eurozone Germany
 
privateconsumption;54.5%governmentspending; 19.4%investment;21,6%net exports;4.3%
 
Source: Eurostat, Erste Group Research Source: Statistics Austria, Erste Group Research
 Net exports and domestic demand are key drivers of growth.
After theeconomic crisis of 2009, which saw a downturn especially in investmentactivity and exports, these two components – as well as householdconsumption – were the key drivers behind the rebound of GDP.
Investment activity, exports and householdconsumption are key growth drivers in Austria
Contribution to real yoy GDP growth by component
 Development of expenditure
In real terms and seasonally adjusted, in EUR million
 
-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%
     Q     2     2     0     0     5     Q     4     2     0     0     5     Q     2     2     0     0     6     Q     4     2     0     0     6     Q     2     2     0     0     7     Q     4     2     0     0     7     Q     2     2     0     0     8     Q     4     2     0     0     8     Q     2     2     0     0     9     Q     4     2     0     0     9     Q     2     2     0     1     0     Q     4     2     0     1     0     Q     2     2     0     1     1
priv. consumptiongross investmentpubl. consumptionnet exports
GDP
 
05,00010,00015,00020,00025,00030,00035,00040,00045,000
     Q     1     2     0     0     5     Q     3     2     0     0     5     Q     1     2     0     0     6     Q     3     2     0     0     6     Q     1     2     0     0     7     Q     3     2     0     0     7     Q     1     2     0     0     8     Q     3     2     0     0     8     Q     1     2     0     0     9     Q     3     2     0     0     9     Q     1     2     0     1     0     Q     3     2     0     1     0     Q     1     2     0     1     1     Q     3     2     0     1     1
private consuptiongovernment spendinginvestmentexportsimports
 
Source: Eurostat, Erste Group Research Source: Eurostat, Erste Group Research
 International competitiveness and low currency risk.
Due to the peggingof the schilling to the currency of Austria's most important trading partner Germany in 1980 and Austria’s subsequent joining of the euro zone, thecountry’s real effective exchange rate – i.e. the weighted and price-adjustedexchange rate – has been stable over the past decades. As more than half of Austrian exports go to the euro zone, most of these exports areunaffected by exchange rate fluctuations, which strengthens the stability of the export sector even further. In 2002, the current account balance turnedpositive. The constant contribution of net exports to GDP is evidence of Austria’s international competitive strength. Moreover, Austria is a netinvestor internationally and hence less dependent on capital imports thanother countries. In view of this constancy and continuity, Austria is clearlyone of the hard currency countries within the euro zone.

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