US: FOMC-meeting slight shift visible

Austria: GDP forecast revised downwards

US: FOMC-meeting slight shift visible

Austrian GDP forecast revised downwards

After the export-driven recovery at the end of 2013, the first half of 2014 brought some disappointment. Exports, however, grew on both a yearly and quarterly bases, albeit much less strongly than previously expected. As a small open economy, Austria (with an export share in GDP of around 60%) relies heavily on exports to support its economic development. As more than half of its exports go to the Euro Area, the much weaker than forecasted recovery and even stagnation worsened the prospects for Austria's GDP growth rate. Slow exports also dragged on investments, presenting fewer selling possibilities and bringing cautiousness to spending on equipment and inventories. Private consumption growth, though again less strong than expected, was the main contributor to the economic growth in Q1 and Q2 2014. Taking into account the recent data and indicators, we adjusted our forecasted GDP growth rate for 2014 to 0.8% (from 1%) and maintain 1.6% for 2015.

Eurozone – PMI’s outlook

Next week’s (23.09) publication of September flash – PMIs (Germany, France and Eurozone) will be important for the assessment of the further economic development of the Eurozone. The current data for 3Q 14 (July and August) points towards a slowing dynamic when compared to 2Q 14 and thus indicates a prolonged weakness of the Eurozone economy in 3Q 14.

FOMC meeting

This week’s FOMC statement contained hardly any news. The wording concerning macroeconomic developments and monetary policy was left more or less unchanged. Further, as expected, monthly asset purchases were reduced by another USD 10bn to USD 15bn and an end to asset purchases was announced for October, though that is contingent on the outlook for the labor market and inflation. Nonetheless, signals of a slight shift towards a more restrictive stance within the committee became visible. Firstly, the number of dissenting votes increased from one to two from the meeting in July. Both dissenters from the statement favored a wording towards a more restrictive monetary stance. Secondly, average interest rate expectations of committee members rose. For the end of 2015, for example, the average estimate for the Fed Funds Target Rate was 1.125% in June. Now it stands at 1.375% for the mid range. We keep our forecast for the first rate hike in March of next year unchanged.