Economic environment

Economic development over the past year was dominated by the European debt crisis. While the upswing continued in the 1st half of the year, the situation escalated during the summer of 2011 on the back of ever-growing speculation about the possible default of Greece. Political leaders and international investors realised that neither the first € 110 billion public bailout package for Greece nor the haircut agreed on 21 July 2011 at the EU summit and originally set at 21 per cent, were enough to lead the country out of the debt crisis on a sustainable basis. At the same time, the austerity packages and structural measures aimed at ensuring Greece’s competitiveness were becoming ever more extreme.

The second Greek aid package has a volume of € 130 billion. The haircut was expanded to 53.5 per cent of the par value of the Greek bonds. The bond swap in March 2012 triggered a credit event on the markets for credit default swaps (CDS), and the composition quota was set at 21.5 per cent. Over the course of 2012, the crisis has spilled over into other European countries: Ireland and Portugal, too, took refuge under the European emergency facility (EFSF). Meanwhile, the newly instituted governments in the peripheral countries of the EU have declared themselves in favour of the austerity and reform measures, with a particular focus on the liberalisation of the labour market in Italy.

These developments left their mark on the economy. After considerable turbulence on the financial markets in August 2011 and a slump in the sentiment indicators, the euro zone slipped into a recession. In the 4th quarter the economy shrank by 0.3 per cent compared with the previous quarter. This means that, on a year-on-year basis, the euro zone economy recorded a GDP growth rate of only 0.7 per cent. At plus 1.2 per cent year on year, Austria outperformed average GDP growth. While the core countries were reporting good growth data right until autumn, some peripheral countries saw a dramatic decline in prosperity.

The US economy, on the other hand, was spared another recession, with GDP increasing by 1.6 per cent in 2011 on the back of solid investment and consumer demand. Employment was upbeat, especially in the 2nd half of the year, as the unemployment rate declined to 8.3 per cent.

The emerging economies were yet again the growth drivers of global growth. Concerns among economists of a downturn in China remained unsubstantiated in 2011. Companies and households benefited from receding inflation, while export demand for Chinese goods remained high.